3. Non-controlling Interest

RE/MAX Holdings is the sole managing member of RMCO and subsequent to the IPO, began to operate and control all of the business affairs of RMCO. As a result, RE/MAX Holdings began to consolidate RMCO on October 7, 2013 and because RE/MAX Holdings and RMCO are entities under common control, such consolidation has been reflected for all periods presented. RE/MAX Holdings owns a 58.33% and 39.89% economic interest in RMCO as of December 31, 2015 and 2014, respectively, and records a non-controlling interest for the remaining 41.67% and 60.11% economic interest in RMCO held by RIHI as of December 31, 2015 and 2014, respectively. RE/MAX Holdings’ economic interest in RMCO increased due to the increase in common units from the issuance of shares of Class A common stock as a result of the Secondary Offering described in Note 1, Business and Organization, upon the exercise of 624,443 stock options, upon the vesting of 14,866 restricted stock units and as a result of the grant of 2,001 shares, net of shares withheld and cancelled to cover the Company’s minimum statutory tax withholding obligation. See Note 12, Equity-Based Compensation, for further details. RE/MAX Holdings’ only sources of cash flow from operations are distributions from RMCO and management fees received pursuant to the management services agreement between RE/MAX Holdings and RMCO. “Net income attributable to non-controlling interest” in the accompanying Consolidated Statements of Income represents the portion of earnings attributable to the economic interest in RMCO held by the non-controlling unitholders. As of October 7, 2013, “Non-controlling interest” in the accompanying Consolidated Balance Sheets represented the carryover basis of RIHI’s capital account in RMCO. Prospectively, the non-controlling interest will be adjusted to reflect tax and other cash distributions made to, and the income allocated to, the non-controlling unitholders as well as future redemptions of Common Units in RMCO pursuant to the New RMCO, LLC Agreement. The ownership of the common units in RMCO is summarized as follows:


	As of December 31,
	2015			2014
	Shares	Ownership %		Shares	Ownership %
Non-controlling unitholders ownership of common units in RMCO	12,559,600	41.67	%	17,734,600	60.11	%
RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO)	17,584,351	58.33	%	11,768,041	39.89	%
Total common units in RMCO	30,143,951	100.00	%	29,502,641	100.00	%

The weighted average ownership percentages for the applicable reporting period are used to calculate the net income attributable to RE/MAX Holdings. A reconciliation from “Income before provision for income taxes” to “Net income attributable to RE/MAX Holdings, Inc.” for the periods indicated is detailed as follows (in thousands, except percentages):


					Period from
	Year Ended		Year Ended		October 7 through
	December 31, 2015		December 31, 2014		December 31, 2013
Income before provision for income taxes attributable to RE/MAX Holdings, Inc.	$	26,797	$	21,339	$	2,393
Provision for income taxes attributable to RE/MAX Holdings, Inc.		(10,142)		(7,903)		(887)
Net income attributable to RE/MAX Holdings, Inc.	$	16,655	$	13,436	$	1,506

A reconciliation of the “Provision for income taxes” for the periods indicated is detailed as follows (in thousands):


					Period from
	Year Ended		Year Ended		October 7 through
	December 31, 2015		December 31, 2014		December 31, 2013
Provision for income taxes attributable to RE/MAX Holdings, Inc. (a)	$	(10,142)	$	(7,903)	$	(887)
Provision for income taxes attributable to entities other than RE/MAX Holdings, Inc. (b)		(1,888)		(2,045)		(184)
Provision for income taxes	$	(12,030)	$	(9,948)	$	(1,071)

(a)

The provision for income taxes attributable to RE/MAX Holdings includes all U.S. federal and state income taxes as well as RE/MAX Holdings’ proportionate share of the net assets of RMCO of the taxes imposed directly on RE/MAX, LLC, a wholly-owned subsidiary of RMCO, related to tax liabilities in certain foreign jurisdictions of approximately $1,280,000 and $1,339,000 for the years ended December 31, 2015 and 2014, respectively, and $120,000 for the period from October 7, 2013 through December 31, 2013.

(b)

The provision for income taxes attributable to entities other than RE/MAX Holdings represents primarily taxes imposed directly on RE/MAX, LLC related to tax liabilities in certain foreign jurisdictions that are allocated to the non-controlling interest.

Distributions and Other Payments to Non-controlling Unitholders

Distributions for Taxes

As a limited liability company (treated as a partnership for income tax purposes), RMCO does not incur significant federal, state or local income taxes, as these taxes are primarily the obligations of its members. As authorized by New RMCO, LLC Agreement, RMCO is generally required to distribute cash on a pro-rata basis to its members to the extent necessary to cover each member’s estimated tax liabilities, if any, with respect to their allocable share of RMCO earnings, but only to the extent that any other discretionary distributions from RMCO for the relevant period were otherwise insufficient to enable each member to cover its estimated tax liabilities. RMCO makes such tax distributions to its members based on an estimated tax rate stipulated in the New RMCO, LLC Agreement, which was calculated at 46.2% for RMCO’s 2015 tax year. During the year ended December 31, 2015, the amount of other discretionary distributions RMCO made to non-controlling unitholders was sufficient to cover such member’s estimated tax liabilities. Distributions for taxes paid to or on behalf of non-controlling unitholders under the New RMCO, LLC Agreement were $17,765,000 during the year ended December 31, 2014, and are recorded in “Non-controlling interest” in the accompanying Consolidated Balance Sheets and Consolidated Statement of Redeemable Preferred Units and Stockholders’ Equity/Members’ Equity and reported in “Distributions paid to non-controlling unitholders” in the accompanying Consolidated Statements of Cash Flows. For the year ended December 31, 2013, distributions for taxes to RMCO’s non-controlling unitholders were also required, but calculated differently, in accordance with the Old RMCO, LLC Agreement and were $19,614,000. Upon completion of its tax returns with respect to the prior year, RMCO may make other discretionary true-up distributions to its members, if cash is available for such purposes, with respect to actual taxable income for the prior year.

Other Discretionary Distributions

Discretionary cash distributions may also be made to non-controlling unitholders based on their ownership percentage in RMCO as determined in accordance with the New RMCO, LLC Agreement. The Company expects that future cash distributions will be made to non-controlling unitholders pro-rata on a quarterly basis equal to the anticipated dividend payments to the stockholders of the Company’s Class A common stock, or otherwise on a discretionary basis as determined to be necessary or appropriate by the Company. The Company made other distributions to non-controlling unitholders of $42,827,000 during the year ended December 31, 2015, which is recorded in “Non-controlling interest” in the accompanying Consolidated Balance Sheets and Consolidated Statement of Redeemable Preferred Units and Stockholders’ Equity/Members’ Deficit and reported in “Distributions paid to non-controlling unitholders” in the accompanying Consolidated Statements of Cash Flows. Of this amount, $35,469,000 related to dividend distributions as discussed in Note 4, Earnings Per Share and Dividends, and $7,358,000 was a discretionary distribution paid in connection with the terms of the New RMCO, LLC Agreement. During the year ended December 31, 2014, the Company made other distributions to non-controlling unitholders of $4,432,000. Discretionary cash distributions were also required to be made to non-controlling unitholders in accordance with the Old RMCO, LLC Agreement in an amount equal to the lesser of (1) the amount of excess cash flow payment required to be paid as a mandatory prepayment pursuant to the Company’s previous senior secured credit facility and (2) $8,000,000. Other distributions paid to non-controlling unitholders during the year ended December 31, 2013 was $8,000,000.

On February 24, 2016, the Company declared a distribution to non-controlling unitholders of $1,884,000, which is payable on March 23, 2016. No other distributions were paid to non-controlling unitholders during the years ended December, 2015, 2014 and 2013.

Payments Pursuant to the Tax Receivable Agreements

As of December 31, 2015, the Company reflected a liability of $100,035,000, representing the payments due to RIHI and Oberndorf under the terms of the TRAs (see current and non-current portion of “Payable pursuant to tax receivable agreements” in the accompanying Consolidated Balance Sheets). Of this amount, $33,018,000 was recorded during 2015 in connection with the Secondary Offering.

As of December 31, 2015, the Company estimates that amounts payable pursuant to the TRAs within the next 12-month period will be approximately $8,478,000, of which $3,848,000 is related to RE/MAX Holdings’ 2014 federal and state tax returns and the remainder is related to RE/MAX Holdings’ 2015 federal and state tax returns. To determine the current amount of the payments due to RIHI and Oberndorf, the Company estimated the amount of taxable income that RE/MAX Holdings generated during 2015 and 2014 as well as the amount of the specified deductions subject to the TRAs which were realized by RE/MAX Holdings in its 2015 and 2014 federal and state tax returns. This amount was then used as a basis for determining the Company’s increase in estimated tax cash savings as a result of such deductions on which a current TRA obligation became due (i.e. payable within 12 months of the Company’s year-end). These calculations are performed pursuant to the terms of the TRAs. The Company paid $0 and $986,000 pursuant to the terms of the TRAs during the years ended December 31, 2015 and 2014, respectively. On February 17, 2016, the Company paid $1,344,000 pursuant to the TRAs.

The timing and amount of the payments to be made under the TRAs are subject to certain contingencies, including RE/MAX Holdings having sufficient taxable income to utilize all of the tax benefits defined in the TRAs. If the Company elects to terminate the TRAs early, the Company would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRAs, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits.

Obligations pursuant to the TRAs are obligations of RE/MAX Holdings. They do not impact the non-controlling interest. These obligations are not income tax obligations and have no impact on the “Provision for income taxes” in the accompanying Consolidated Statements of Income. In general, items of income, gain, loss and deduction are allocated on the basis of the members’ ownership interests pursuant to the New RMCO, LLC Agreement after taking into consideration all relevant sections of the Internal Revenue Code.