Tammy, Rebecca, and Miriam are partners in TRM Consulting, LLC, which will receive partnership tax treatment as the default for tax purposes. Tammy, Rebecca, and Miriam contribution $50,000, $25,000, and $25,000 of cash. In addition, the partnership agreed to take on a non-recourse loan of $20,000 from Miriam. Rebecca would like to contribute services to the partnership and is considering asking for additional profits interest in return for the service. Without the service, Tammy, Rebecca, and Miriams profits interests would be 50%, 25%, and 25%, respectively. Answer the following questions to help Rebecca think about what would happen if she performs the services for the additional profits interest.

a. If Rebecca opts to ask for an additional 10% profits interest (taking 5% away from Tammy and 5% from Miriam), do any of the partners have to immediately recognize taxable income or a deduction on the transactions above? If so, how much income (or deduction) is recognized for each partner and what is the character of the income (or deduction)? bother partners

b.Continuing from part a., how much would Rebeccas service in exchange for profits interest change each partners outside tax basis (if at all)? If there is change, make sure it is clear whether the change is positive (increases outside tax basis) or negative (decreases outside tax basis). both partners