1. Wozniacki and Wilcox form Jewel LLC, with each receiving a one-half interest in the capital and profits of the LLC. Wozniacki receives his one-half interest as compensation for tax planning services he rendered prior to the formation of the LLC. Wilcox contributes $50,000 cash. The value of a one-half capital interest in the LLC (for each of the parties) is $50,000. A. How much income does Wozniacki recognize as a result of this transaction, and what is the character of the income?
B. How much is Wozniacki’s basis in the LLC interest?
C. How will Jewel treat this amount?
2. Assume in problem above, that Wozniacki received a one-half profits interest instead of a one-half capital interest. How much income does Wozniacki recognize as a result of this transaction, and what is the character of the income? Assume that the FMV of the interest received in this problem cannot be determined because this is a new LLC with no history and it is trying to market a totally new service.