LO.6 Last year, Henry sold real estate (basis of $450,000) to Bill (an unrelated party)

for $1.8 million, receiving $300,000 in cash and notes for the balance. The notes carry an 8.5% rate of interest and mature annually at $500,000 each over three years. Henry did not elect out of the installment method of reporting the gain. Before any of the notes mature and when they have a fair market value of $1.3 million, Henry gives them to Jean.

a. Disregarding the interest element, what are the tax consequences of the gift?

b. Suppose that instead of making the gift, Henry died. The notes passed to his estate and were later sold by the executor. What is the tax result?