Ivana, Eric, and Jerry form a partnership to develop the land into commercial offices and rent them for a profit. Ivana contributes land with a fair market value of $1,200,000 and a $600,000 basis. Eric and Jerry each contribute $600,000 of cash.

(a) Assume that Ivana is a 50% partner and that Eric and Jerry each are 25% partners. If the partnership earns $400,000 from operations in its first year and distributes the cash proportionately, does Ivana recognize any gain?

(b) Pursuant to the written partnership agreement, the partnership pays Ivana $100,000 a year for six years, regardless of its income, as a guaranteed payment for capital. Alternatively, pursuant to the partnership agreement, the partnership allocates and distributes the first $100,000 of income exclusively to Ivana for six years. Assume that the highest applicable federal rate for all years equals 8%. Does Ivana recognize any gain?