J&J, LLC, was in its third year of operations when J&J decided to expand the number of members from two, A and 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 one-third 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 one-third profits 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	$ 20,000	$ 20,000	Account Payable	$ 7,000	$ 7,000
Inventory	5,000	5,000	Mortgage Payable	20,000	20,000
Equipment	10,000	17,000	ACapital	22,000	30,000
Building	30,000	45,000	BCapital	16,000	30,000
Total Assets	$ 65,000	$ 87,000	Total liability and OE	$ 65,000	$ 87,000