LO.6, 8 Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership profits and losses. The partnership’s balance sheet at the end of the current year is as follows:

Basis FMV Basis FMV Cash $120,000 $120,000 Hannah, capital $ 90,000 $250,000 Receivables –0– 240,000 Diana, capital 90,000 250,000 Land 150,000 390,000 Alexis, capital 90,000 250,000 Total $270,000 $750,000 Total $270,000 $750,000 Diana sells her interest in the HDA Partnership to Kenneth at the end of the current year for cash of $250,000.

a. How much income must Diana report on her tax return for the current year from the sale? What is its nature?

b. If the partnership does not make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected?

c. If the partnership did make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected? When the land (which is used in the HDA Partnership’s business) is sold for $420,000? Assume that no other transactions occurred that year.