Use the following data.

The balance sheet (with fair market values displayed) is for a three-person service partnership with three equal partners. Thornton enters into a retirement agreement with the partnership that provides for payments of $33,500 annually for 4 years and liability release of $6,000 at the end of the payout period. The partnership agreement does not provide for property payments to a partner for the partners share of goodwill.

	Value	Tax Basis
Cash	240000	240000
Unrealized Receivables	60000	0
Unstated Goodwill	60000	0
Other Property	60000	45000
Total	420000	285000
Liabilities	18000
Capital	Value	Tax Basis
Norton	134000	95000
Horton	134000	95000
Thornton	134000	95000

Suppose the partnership made a different retirement payout agreement with Thornton. Under this agreement, the partnership agreed to pay Thornton $90,000 in cash and $6,000 of liability release in the first year and 10% of the partnership profits for the following three years. SELECT ALL OF THE TRUE STATEMENTS FROM THE LIST BELOW.

1	Thornton would recognize $1,000 of capital gain in the first year
2	All payments after the first year would represent ordinary income to Thornton
3	The payments to Thornton would represent a guaranteed payment
4	The partnership would receive a deduction from ordinary income for all the payments to Thornton
5	Thornton is considered to continue as a partner until the Section 736(a) payments are completed