provide an explanation of the correct answer and why the other choices are incorrect.

3) Gray is a 50% partner in Fabco Partnership. Grays tax basis in Fabco on January 1, year 4, was $5,000. Fabco made no distributions to the partners during year 4 and recorded the following:

Ordinary income $20,000

Tax-exempt income 8,000

Portfolio income 4,000

What is Grays tax basis in Fabco on December 31, year 4?

a) $21,000

b) $16,000

c) $12,000

d) $10,000