Ben and Pete form a corporation to run a real estate investment management company.

Ben contributes cash of $40,000 to the corporation in exchange for 50% of its stock. Pete obtains his 50% ownership interest by contributing land with a fair market value of $40,000 and a basis of $60,000. The land has the potential to be more valuable to the business in the future. Ben is aware of the nonrecognition rules for contributions to corporations and wants to use the corporate form. Pete realizes that if he contributes the land, he will not be able to recognize the unrealized loss.