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22 February, 14:21

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?

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  1. 22 February, 17:40
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    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.
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