Question $15$

$4$ pts

A received a fully$-$vested $10\%$ interest in partnership capital and a $20\%$ interest in future partnership profits in exchange for services rendered to Partnership $($not a publicly$-$traded partnership interest$).$ The future profits of the partnership are subject to normal operating risks. How should A report this transaction?

A will report ordinary income equal to the fair market value of the profits interest, but the capital interest will not be currently taxed to him.

A will recognize ordinary income equal to the fair market value of the capital interest, but the profits interest will be taxed to $A$ as the partnership's profits are earned.

Both the profits interest and the capital interest will be taxed to $A.$ now, when the interests are received.

Neither the capital interest nor the profits interest will be taxed to A until partnership profits are earned.

None of the above.