Question

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.

How much income does Wozniacki recognize as a result of this transaction, and what is the character of the income?

Answer 1

Answer:

Recognize the $50,000 as a compensation income received.

Explanation:

The reason is that the Compensation of $50,000 that Wozniacki received for the services that he previously used to render which means this whole amount received must be recognized as income.