The December 31 Balance Sheet of GST Services, LLP Reads

Multiple Choice

The December 31 balance sheet of GST Services, LLP reads as follows. $\begin{array}{lrr}&\text { Adjusted } & \\&\text { Basis } & \text { FMV } \\\text { Cash } & \$ 300,000 & \$ 300,000 \\\text { Receivables } & -0- & 150,000 \\\text { Capital assets } & \underline{120,000} & \underline{150,000} \\\text { Total } & \$ 420,000 & \$ 600,000\\\\\text { George, capital } & \$ 140,000 & \$ 200,000 \\\text { Sue, capital } & 140,000 & 200,000\end{array}$ $\begin{array}{lll}\text { Tom, capital } & {140,000}& {200,000}\\\text { Total } &{\$ 420,000} &{\$ 600,000} \end{array}$ The partners share equally in partnership capital, income, gain, loss, deduction, and credit. Capital is not a material income-producing factor to the partnership, and all partners are active in the business. On December 31, general partner Sue receives a distribution of $200,000 cash in liquidation of her partnership interest under § 736. Sue's outside basis for the partnership interest immediately before the distribution is $150,000. Her basis does not correspond to her capital account because she purchased the interest a few years ago at a $10,000 premium.) How much is Sue's gain or loss on the distribution and what is its character?

A) $50,000 ordinary income.
B) $40,000 ordinary income? $10,000 capital gain.
C) $40,000 capital gain? $10,000 ordinary income.
D) $60,000 ordinary income.
E) $50,000 ordinary income? $10,000 capital gain.