Partnership - Captial Interest and Profits Interest

[Forensicacctnt]

Client is a 50/50 partner in an LLC taxed as a partnership. The client became a partner in September, 2018 and his partner granted him 50% ownership and he was not required to make a monetary contribution. He has 50% interest in capital and profits/losses. There was no other terms established about vesting or any restrictions. What are the tax implications for the client who is now wanting to get out of the partnership and be paid his ownership interests. (The operating agreement says book value is the basis for the value in case a partner leaves the business.)
Does the client have a tax liability for tax year 2018 for the ownership he was granted and if so how is the tax liability determined? Thanks very much.

[Forensicacctnt]

I apologize for forgetting one important fact. The ownership interest he was granted was $50,000 which was equal to the other partner who made a monetary contribution.

[kathyc2]

It depends. Was there "sweat equity" involved? A parent looking to gift interest to child? It doesn't sound like an arms length transaction if the new partner is vested in 50% of company after only a year without putting anything in.

[Forensicacctnt]

The client was granted the 50% ownership due to "sweat equity". Further, I learned late today, the LLC is taxed as an S-Corp. The $50,000 amount equal to what his partner put into the business, for which she said he "sweat equity" was worth should have been reported as compensation (W-2) in 2018 if the stock was unrestricted. I am looking further into the matter to find out if the stock issued to him in September, 2018 was restricted or unrestricted.