Miguel is a talented chef and unhappy with his current employer. He recently told you that a rival restaurant has offered him a chance to be a 25% partner in their restaurant. Miguel says that the talks are very preliminary, but in rough terms the deal will be as follows:

1) Miguel will be paid $50,000 per year for the first five years in exchange for him being head chef of the new restaurant.

2) Miguel will receive 25% of the profits interest in the partnership.

3) Miguel will receive 25% of the capital of the partnership, but he will not contribute any property to the partnership.

Prepare a brief memo to Miguel highlighting the likely tax treatment to him as a result of the above. Cite your authority.