Choice "b" is correct. In a complete liquidation of a partnership, a partner (Baker) recognizes gain only to the extent that the money received (if any) exceeds that partner's adjusted basis in the partnership immediately before the distribution. In this question, there is no money distributed, so there is no gain. The partner recognizes loss if only money, unrealized receivables, or inventory are received and if the basis of the assets received is less than the partner's basis in the partnership. In this question, there is no money, unrealized receivables, or inventory distributed, so there is no loss, regardless of the partner's basis in the partnership. Even though the land has a $40,000 fair market value, Baker's basis in the land is his $60,000 partnership basis, effectively giving him a $20,000 built-in loss that he can recognize by selling the land.

Choice "d" is incorrect. The $35,000 is the difference between the $40,000 fair market value of the land and the land's $75,000 adjusted basis (to the partnership). That difference is not reported as a loss by the partner or by the partnership.

Choice "c" is incorrect. The $20,000 is the difference between the $40,000 fair market value of the land and the $60,000 partner's adjusted basis in the partnership. That amount is the partner's built-in loss in the land, but the loss is not recognized unless and until the partner sells or disposes of the land in a separate taxable transaction.

Choice "a" is incorrect. The $15,000 is the difference between the $60,000 partner's adjusted basis in the partnership and the $75,000 partnership's adjusted basis in the land. That difference is not recognized in any way.