Terry received a proportionate share of partnership inventory in complete liquidation of her partnership interest.If Terry holds the distributed property as a capital asset for six years and sells it for a gain,the gain is taxed as a long-term capital gain.

Question

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Under § 735(a)(2),the sale or exchange of inventory items results in ordinary income or loss if the partner sells or exchanges such items within five years of the distribution date.After five years,the character is determined based on the partner's use of the property.

Terry Received a Proportionate Share of Partnership Inventory in Complete