A New Partner, Gary, Contributes Cash and Assumes a Share

A new partner, Gary, contributes cash and assumes a share of partnership liabilities. Diane's capital, profits, and loss interest in the partnership is reduced by 5% due to the admission of Gary. The Sec. 751 rules do not apply. Partnership liabilities at the time Gary is admitted are $200,000, and all of the liabilities are recourse debts for which the partners share the economic risk of loss in the same way they share partnership profits. Diane's basis in the partnership interest prior to Gary's admission is $5,000. Due to the admission of Gary, partner Diane has

A) no recognized gain or loss and a partnership interest basis of $10,000.
B) no recognized gain or loss.
C) a recognized gain of $5,000 and a partnership interest basis of zero.
D) a recognized gain of $5,000 and a partnership interest basis of $5,000.

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