Evelyn incorporates her sole proprietorship, transferring it to newly formed Papaya Corporation. The assets transferred have an adjusted basis of $400,000 and a fair market value of $500,000. Also transferred was $50,000 in liabilities, $1,000 of which was personal and the balance of $49,000 being business related. In return for these transfers, Evelyn receives all of the stock in Papaya Corporation.