J&J, LLC was in its third year of operations when J&J decided to expand the number of members from two, A & B, with equal profits and capital interests to three members, A, B, and C. The third member, C, will contribute her financial expertise to the LLC in exchange for a 1/3 capital interest in J&J. Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J when C receives her capital interest? If, instead, member C receives a 1/3 profit interest, what would be the tax consequences to members A, B, and C, and to J&J?

J&J Limited Liability Company
Balance Sheet
	Basis	FMV		Basis	FMV
Cash	15,000	15,000	Account Payable	5,000	5,000
Inventory	4,000	4,000	Mortgage Payable	10,000	10,000
Equipment	5,000	12,000
Building	9,000	23,000	A - Capital	12,000	19,000
			B - Capital	6,000	20,000
Total Assets	33,000	54,000	Total Liab. & OE	33,000	54,000

Answer rating: 100% (QA)

Solution 1 If C receives a 13 capital interest As a general rule a contribution of services in excha... View the full answer