Wozniacki and Wilcox form Jewel LLC, with Wozniacki receiving a one-half interest in the capital and Wilcox receiving a one-half interest in the capital of the LLC. (Ignore any profits interest for this problem.) 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 member) 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?

Question

Kaiya Rodriguez

Business

13 December, 03:04

Wozniacki and Wilcox form Jewel LLC, with Wozniacki receiving a one-half interest in the capital and Wilcox receiving a one-half interest in the capital of the LLC. (Ignore any profits interest for this problem.) 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 member) 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?

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Answers (1)

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Cristian Lyons · Answer 1

Answer and Explanation:

a. $50,000 compensation income (As it is already mentioned that Wozniacki receives the money for tax planning service prior to the formation of the LLC as compensation.

b. $50,000 (For each member it is $50,000. Therefore, for Wozniacki it will be also be $50,000)

c. As a business deduction (due to partnership) Wozniacki and Wilcox have formed Jewel LLC, therefore, distribution is a business deduction in the form of payments to both the partners.