Hazel transferred the following assets to Starling Corporation:

Adjusted ...........Basis Fair ..........Market Value

Cash .................$100,000    ..................$100,000

Machinery   .....$60,000 ...........$ 40,000

Land ...............$100,000 .................$150,000

In exchange, Hazel received 50% of Starling Corporation's only class of stock outstanding. The stock has no established value.

However, all parties sincerely believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred.

The only other shareholder, Rick, formed Starling Corporation five years ago. What are the income tax consequences to Hazel and Starling Corporation with regard to the exchange.