Choice "d" is correct. Generally, no gain or loss is recognized on a
contribution of property to a partnership in return for a partnership interest.
The partner's original basis for a partnership interest acquired by contribution
of property is the adjusted tax basis of the property (unless the property is
subject to excess liability, which is not the case in this question).
Choice "b" is incorrect. Walker's adjusted tax basis in the property is
$20,000. There are no partnership liabilities, and the facts do not indicate
that the property was subject to excess liability. The facts in the question do
not support a zero basis in the partnership interest.
Choice "a" is incorrect. The $50,000 fair market value is not used to
determine the initial basis in the partnership interest; however, upon the sale
of the property, the fair market value will be used in the calculation of the
special allocation to the contributing partner of the built-in gain on the
sale.
Choice "c" is incorrect. The $75,000 original cost of the property is not
used to determine the contributing partner's basis. The amount to use is the
adjusted tax basis (cost less depreciation or other basis reduction) upon
contribution.
