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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