Ola Associates is a limited partnership engaged in real estate development. Hoff, a civil engineer, billed Ola $40,000 in 2007 for consulting services rendered. In full settlement of this invoice, Hoff accepted a $15,000 cash payment plus the following:

Fair market value

Carrying amount on Ola’s books

3% limited partnership interest in Ola

$10,000

N/A

Surveying equipment

7,000

$3,000

What amount should Hoff, a cash-basis taxpayer, report in his 2007 return as income for the services rendered to Ola?

  1. $15,000
  2. $28,000
  3. $32,000
  4. $40,000