Mike and Seth form an equal partnership to create and develop an Internet solutions provider business. Mike contributes equipment with a basis of $30,000 and FMV of $60,000 while Seth contributes cash $60,000. Soon after, they admit Bill as an equal partner with the condition that Bill should develop three marketable products within two years. Once the products are developed, the business is likely to be valued at $600,000. If the products are not developed within two years, the business may be worth only $90,000 (due to the obsolescence of equipment).

1. Is there any gain or loss to Mike, Seth, and Bill? What are the inside basis and outside basis?
2. What advice would you give Bill?