In 1963 John H. Otey, Jr. (plaintiff) inherited property from his uncle that had a fair market value of $18,500. In 1971 Otey and Marion Thurman, a real estate developer, formed a partnership called Court Villa Apartments (the partnership) to develop the property into a moderate-income apartment complex. Under the partnership agreement, Thurman was to build the complex and Otey was to manage it. Otey transferred title to the property, whose fair market value in 1971 had increased to $65,000, to the partnership. The transfer of property was meant to be a capital contribution. Thurman used his good credit to help the partnership obtain a construction loan of approximately $870,000, for which he and Otey were jointly and severally liable. Pursuant to the partnership agreement, Otey was paid $65,000 out of the loan for his property contribution. Otey’s basis in the partnership was $18,500, the fair market value of the property at the time it was given to him, minus his liability for half of the construction loan. After receiving the $65,000, Otey adjusted his basis in the partnership. Because his liability for the construction loan was greater than the amount he was paid for the property, Otey did not report income from the transfer on his income-tax return. The Commissioner of Internal Revenue (the Commissioner) (defendant) determined a deficiency against Otey, reasoning that the money Otey received from the transfer of the property was a gain from the sale of the property to the partnership, rather than a capital contribution. Otey petitioned the United States Tax Court for a redetermination.