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Henry Hawkins sold IPR stock to partnership

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Henry Hawkins owns 20 percent interest in the HI Partnership. On July 1 he sold 100 shares of stock of IPR Corporation to the partnership for $10,000, its fair market value. The stock had cost him $5,000 10 months prior to the sale. How much and what character of profit must Henry report on this sale currently?

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Solution Summary

The solution presents two possible solutions based on the interpretation of the question. Depending on the circumstances, both answers are viable responses and both are explained as to their differences.

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Scenario 1:
This is an interesting question that rarely happens in the real world. The narrative says that Henry 'sold' the stock, as opposed to transferred stock exchange for an interest in a partnership.

Now, if he really sold and received cash, then he has a sale for 80% of the fair market value of the stock. The reason it is only 80% is ...

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