A and B each owns a small airplane. Each airplane was acquired five years ago for $6 million and is being depreciated on a straight-line basis over a 10-year recovery period. After having been depreciated for five years, each airplane retains a fair market value of $6 million, but has a tax basis of $3 million. Also, each airplane secures nonrecourse indebtedness of $3 million. A and B agree to contribute their respective airplanes, encumbered by those airplanes' accompanying nonrecourse indebtedness, to a new limited lability company, x LLC, which they form to run a flying taxi business, along with a third individual called Cain. Each airplane would have had a 10-year recovery period if x LLC had purchased it at the time it was contributed. C agrees to provide $3 million in cash to X LLC for working capital, so that A, B, C each owns one-third of X LLC.

The operating agreement of x LLC: (1) provides for equal allocations of all items of income, gain, profit, loss, deduction, and credit; (2) complies with the safe harbor for allocating nonrecourse deductions specified in Treasury Regulations 1.704-2(e); and (3) makes a 754 election.

In each of the first three years after its formation, before depreciation, x LLC operates on a break-even basis; i.e., income equals expenses, including interest on the non-recourse debt. No principal is repaid on the nonrecourse indebtedness encumbering the airplanes during these three years. Three years after x LLC has been in business, each airplane continues to retain a fair market value of $6 million. On the third anniversary of x LLC's formation, C gets into a violent argument with A. Concluding that he no longer wants to remain in business with A and B, C sells his one-third interest in x LLC to an unrelated individual, D, for $3 million in cash.

What are the tax consequences of this sale to: C; D; and x LLC?