3. Non-controlling Interest

RE/MAX Holdings is the sole managing member of RMCO. As a result, RE/MAX Holdings operates and controls all of the management, business and affairs of RMCO while owning a 39.50% and 39.56% minority economic interest in RMCO as of June 30, 2014 and December 31, 2013, respectively. Beginning on October 7, 2013, RE/MAX Holdings began to consolidate the financial results of RMCO and recorded a non-controlling interest for the remaining 60.50% and 60.44% economic interest in RMCO held by RIHI, Inc. (“RIHI”) as of June 30, 2014 and December 31, 2013, respectively. RE/MAX Holdings’ minority economic interest in RMCO decreased due to the cancellation of 30,519 common units in RMCO in May 2014 as discussed in more detail in Note 10, Equity-Based Compensation. 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 in the accompanying Condensed Consolidated Statements 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 in the accompanying Condensed Consolidated Balance Sheets represented the carryover basis of RIHI’s capital account in RMCO. Prospectively, the non-controlling interest has been adjusted to reflect tax and other cash distributions made to, and the income allocated to, the non-controlling unitholders. The ownership of the common units in RMCO is summarized as follows:

	June 30, 2014					December 31, 2013
	Shares		Ownership %			Shares		Ownership %
Non-controlling unitholders ownership of common units in RMCO		17,734,600		60.50	%		17,734,600		60.44	%
RE/MAX Holdings, Inc. outstanding Class A common stock (equal to RE/MAX Holdings, Inc. common units in RMCO)		11,577,452		39.50	%		11,607,971		39.56	%
		29,312,052		100.00	%		29,342,571		100.00	%

The aforementioned ownership percentages 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 three and six months ended June 30, 2014 is detailed as follows (in thousands, except percentages):

	Three months ended June 30, 2014			Six months ended June 30, 2014
Income before provision for income taxes	$	17,638		$	27,321
Ownership percentage of controlling interest		39.53	%		39.55	%
Income before provision for income taxes attributable to RE/MAX Holdings, Inc.		6,972			10,805
Provision for income taxes attributable to RE/MAX Holdings, Inc.		(2,595	)		(4,017	)
Net income attributable to RE/MAX Holdings, Inc.	$	4,377		$	6,788

A reconciliation of the “Provision for income taxes” for the three and six months ended June 30, 2014 is detailed as follows (in thousands):

	Three months ended June 30, 2014			Six months ended June 30, 2014
Provision for income taxes attributable to RE/MAX Holdings, Inc. (a)	$	(2,595	)	$	(4,017	)
Provision for income taxes attributable to entities other than RE/MAX Holdings, Inc. (b)		(534	)		(997	)
Provision for income taxes	$	(3,129	)	$	(5,014	)

(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’ approximate 40% share 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 $351,000 and $654,000 for the three and six months ended June 30, 2014, respectively.

(b)	The provision for income taxes attributable to entities other than RE/MAX Holdings represents 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 the Fourth Amended and Restated RMCO Limited Liability Company Agreement (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 each members’ tax liabilities, if any, with respect to their allocable share of RMCO earnings. RMCO makes such tax distributions to its members based on an estimated tax rate in accordance with 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 paid to or on behalf of non-controlling unitholders were $12,221,000 during the six months ended June 30, 2014, and are recorded in “Non-controlling interest” in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Stockholders’ Equity. For the six months ended June 30, 2013, distributions for taxes to RMCO’s non-controlling unitholders were also required, but calculated differently, in accordance with the Third Amended and Restated RMCO Limited Liability Company Agreement (the “Old RMCO, LLC Agreement”). Distributions for taxes paid to non-controlling unitholders during the six months ended June 30, 2013 were $12,683,000.

Other Distributions

Cash distributions are also made to non-controlling unitholders based on their ownership percentage in RMCO as determined in accordance with 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. The Company made distributions of $1,108,000 to non-controlling unitholders on each of April 17, 2014 and June 5, 2014, which are recorded in “Non-controlling interest” in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Stockholders’ Equity. On August 6, 2014, the Company declared a distribution to non-controlling unitholders of $1,108,000, which is payable on September 3, 2014. 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 six months ended June 30, 2013 were $8,000,000.

Payments Pursuant to the Tax Receivable Agreements

As of June 30, 2014, the Company recorded a liability of $68,840,000, representing the payments due to RMCO’s historical owners RIHI and Weston Presidio V., L.P. (“Weston Presidio”) under the terms of the TRAs (see current and non-current portion of “Payable to related parties pursuant to tax receivable agreements” in the Company’s accompanying Condensed 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. No amounts were paid pursuant to the terms of the TRAs during the six months ended June 30, 2014.

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 the members’ ownership interests pursuant to the New RMCO, LLC Agreement after taking into consideration all relevant sections of the Internal Revenue Code.