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Which of the following statements regarding capital and profits interest is incorrect ? A. Capital interest is defined as the right to receive a share

Which of the following statements regarding capital and profits interest is incorrect?

A. Capital interest is defined as the right to receive a share of the partnership assets if the partnership were to liquidate.

B. Partners typically recognize income for the value of profits interests they receive in exchange for services.

C. The partner who performs service in exchange for capital interest must recognize the liquidation value of capital interest as ordinary income.

D. The holding period of a capital or profits interest begins on the date the interest is received.

E. When a partner performs service in return for capital interests, the partnership can deduct the amount of income included in the service partners tax return.

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