Mary, Joann and Larry form Denver Sales Corporation. Mary and Joann transfer appreciated property and each receives 45 shares of stock. Larry performs services and receives 10 shares of stock. The services Larry performs are valued at $10,000.

1. Mary, Joann and Larry have no tax consequences associated with this transaction.
2. Mary and Joann will have a basis in their stock equal to the basis of the property they contributed less $10,000 ($5,000 each).
3. Denver Sales will have a basis in the property received from Mary and Joann equal to the fair market value of the property.
4. Larry will recognize $10,000 of ordinary income.