How would your answers to problem 61 change if capital was not a material income producing factor for the partnership?

Problem 61

Assume the same facts as in problem 60, except that the partnership agrees to distribute property 2 and $75,000 cash to Clay in liquidation of his interest. (To fund the distribution, the partnership borrowed money from a local bank). Further assume that capital és a material income-producing factor for this partnership.

a. How much gain will Clay recognize in connection with the distribution now, and what will be its character?

b. What will be Clay’s tax basis in the property received?

c. How will the distribution affect the partnership for tax purposes?