3. Non-controlling Interest

The Reorganization Transactions and IPO resulted in RE/MAX Holdings becoming RMCO’s sole managing member. As a result, RE/MAX Holdings operates and controls all of the business and affairs of RMCO while owning a 39.56% minority economic interest in RMCO. Therefore, beginning on October 7, 2013, RE/MAX Holdings began to consolidate the financial results of RMCO and its subsidiaries and to record a non-controlling interest for the remaining 60.44% economic interest in RMCO held by RIHI. 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 the non-controlling interest on the Consolidated Statement of Income and Comprehensive Income represents the portion of earnings attributable to the economic interest in RMCO held by the non-controlling unitholders. As of October 7, 2013, the non-controlling interest on the Consolidated Balance Sheets represents the carryover basis of RIHI’s capital account in RMCO. Prospectively, non-controlling interest on the Consolidated Balance Sheets is adjusted to reflect the distributions to and income allocated to the non-controlling unitholders. The ownership of the Common Units is summarized as follows:

	Non-controlling unitholders ownership of Common Units in RMCO			RE/MAX Holdings outstanding Class A common stock (equal to RE/MAX Holdings Common Units in RMCO)			Total
As of October 7, 2013 and December 31, 2013		17,734,600			11,607,971			29,342,571
		60.44	%		39.56	%		100.00	%

The balance of the non-controlling interest as of October 7, 2013 and December 31, 2013 is as follows (in thousands):

Equity held by the non-controlling unitholders as of October 7, 2013 immediately prior to the Reorganization Transactions and IPO	$	(155,823	)
Reorganization Transactions whereby a portion of the Class A preferred units were converted to Common Units		82,500
Redemption of remaining Common Units held by Weston Presidio, and a portion of the Common Units held by RIHI		(147,768	)
Offering expenses incurred by RMCO and deducted against proceeds received		(5,972	)
RMCO equity held by the non-controlling unitholders as of October 7, 2013 immediately after the Reorganization Transactions and IPO	$	(227,063	)
Allocation of income subsequent to Reorganization Transactions and IPO		3,470
Distributions paid and payable to non-controlling unitholders		(2,832	)
Balance of non-controlling interest as of December 31, 2013	$	(226,425	)

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 or state and local income taxes, as these taxes are primarily the obligations of the members of RMCO. As authorized by the New RMCO, LLC Agreement, RMCO is required to distribute cash, generally, on a pro rata basis, to its members to the extent necessary to cover the members’ tax liabilities, if any, with respect to their share of RMCO earnings. RMCO makes such tax distributions to its members based off an estimated tax rate which is calculated at 46.2% for RMCO’s 2013 tax year and is based on the terms of the New RMCO, LLC Agreement. Upon completion of its tax returns with respect to the prior year, RMCO may make true-up distributions to its members, if cash is available for such purposes, with respect to actual taxable income for the prior year. Distributions for taxes to RMCO’s non-controlling unitholders were also required in accordance with the Old RMCO, LLC Agreement and were $19,614,000, $3,479,500 and $10,370,000 during the years ended December 31, 2013, 2012 and 2011, respectively.

Other Distributions

Cash distributions are also made to non-controlling unitholders based on their ownership percentage in RMCO as determined in accordance with the Old RMCO, LLC Agreement and the New RMCO, LLC Agreement. Future cash distributions will be made to non-controlling unitholders pro rata on a quarterly basis equal to the anticipated dividend payments to the holders of the Company’s Class A common stock. Distributions of $8,000,000, $6,123,500 and $5,000,000 during the years ended December 31, 2013, 2012 and 2011, respectively, were made to non-controlling unitholders.

Payments Pursuant to the Tax Receivable Agreements

As of December 31, 2013, the Company recorded a liability of $68,840,000, representing the payments due to the Historical Owners under the TRAs (see current and non-current portion of “Payable to related parties pursuant to tax receivable agreements” on the Company’s Consolidated Balance Sheets).

Within the next 12 month period, the Company expects to pay $902,000 of the total amount of the estimated TRA liability. To determine the current amount of the payments due to the Historical Owners pursuant to the TRAs, the Company estimated the amount of taxable income that RE/MAX Holdings generated from the date of the closing of the IPO on October 7, 2013 through December 31, 2013. Next, the Company estimated the amount of the specified deductions subject to the TRA which are expected to be realized by RE/MAX Holdings in its 2013 tax return. 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.

Payments are anticipated to be made under the TRAs indefinitely, with the first potential payment becoming due on the original due date of RE/MAX Holdings’ initial federal income tax return. The payments are to be made in accordance with the terms of the TRAs. The timing of the payments is subject to certain contingencies including RE/MAX Holdings having sufficient taxable income to utilize all of the tax benefits defined in the TRAs.

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 tax provision or the allocation of taxes. In general, items of income, gain, loss and deduction are allocated on the basis of member’s ownership interests pursuant to the New RMCO, LLC Agreement after taking into consideration all relevant sections of the Internal Revenue Code.