1.DAK form a limited partnership. D is the 20% general partner, and A and K are each 40% limited partners. A and K each contribute $500,000 cash, and D, a petroleum engineer, contributes his agreement to work for and manage the partnership for 5 years in exchange for a 20% interest in future profits and losses. His interest in partnership profits vests immediately, D would receive nothing. If the partnership were liquidated immediately after formation, DAK takes out a recourse note for $2,000,000 anduses the cash proceeds of the noteto purchase an existing oil and gas unit.

What is the tax effect of D's receipt of a profits interest to the partnership and D?