Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits. Two weeks later, Karl sells the profits interest for $30,000. In this tax year, Karl must recognize
A)no gain or loss.
B)a $30,000 short-term capital gain.
C)a $30,000 ordinary income.
D)a $30,000 Sec. 1231 gain.

Question

Quizplus · Accepted Answer

Since Karl sold a profits interest in a limited partnership within two weeks of acquiring it, the sale is treated as an "assignment of income" under the tax law, which means that Karl must recognize the full amount of the proceeds as ordinary income in the tax year of the sale. Therefore, the correct answer is (C) a $30,000 ordinary income.

Karl Arranges Financing for a Limited Partnership to Purchase Real