Tara and Robert Formed the TR Partnership Four Years Ago

Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year?

A) Nontaxable.
B) $25,000 ordinary income.
C) $25,000 short-term capital gain.
D) $25,000 long-term capital gain.
E) None of the above.