A warehouse owned by M&S (a partnership) and used in its business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on an estimate of fair market value. In the negotiations, the city is offering $35,000 less than what M&S believes the property is worth. Alan, a real estate broker, has offered to purchase the property for $20,000 more than the city's offer. The partnership plans to invest the proceeds it will receive in an office building it will lease to various tenants.
a. Identify the relevant tax issues for M&S.
b. Would the answer in (a) change if M&S's warehouse was property being held for investment rather than being used in its business? Explain.