Let's now apply the nonrecognition rule exceptions to Sunchaser Shakery. In June of year one, Nicholas contributed appreciated property to Sunchaser Shakery Partnership. He received a cash distribution of $15,000 from Sunchaser in November of year four. None of the other partners received a distribution, and there was no agreement that Sunchaser would make the distribution. Nicholas, however, would have made the initial contribution regardless of whether Sunchaser made the distribution or not. Now, we want to know, is this transaction likely to be characterized as a disguised sale by the IRS? In short, the answer is No. But here's why. So, the first contribution was not contingent upon a future distribution. Also, it meets the two year time frame that we discuss earlier, in which a distribution is generally presumed not to be a disguised sale. Nicholas received a 30 percent capital interest in Sunchaser Shakery Partnership by contributing consulting services. Sunchaser had net assets at that time with a basis of $48,000 and a fair market value of $220,000. And the question asked, what amount of income, if any, does Nicholas recognize? So recall, that an individual must recognize compensation income when a partnership interest is received in exchange for services. And so, if we take his 30 percent interest and multiply it by the fair market value of the interest that he's actually going to get of $220,000, then we see that because he's contributing services, he's going to recognize $66,000 in ordinary income. Why? Again, because he didn't transfer property, he transferred services in exchange for the partnership interest. Nicholas received a 25 percent capital interest in Sunchaser Shakery Partnership in return for consulting services rendered, and a contribution of equipment with a basis of $35,000 and a fair market value of $40,000. The value of his interest received was $50,000. And Sunchaser had no liabilities. And the question asked, what is Nicholas's basis in his Sunchaser interest? So, the key issue here is that once again, we have services being rendered in exchange for an interest in a partnership. But what's different in this problem, is that there are services and property. So, we have to somehow allocate between the two to figure out how much income he would recognize for the services provided. So, we can just do this pretty simply. And then we can just say, $50,000 is the value of the interest that he's receiving in the partnership. And we're told that he's contributing assets that were worth $40,000 at the time of the contribution. So, we can sort of deem here that $10,000 is the net value of the services that he's providing to get this partnership interest. So, in terms of his basis in his interests, we would basically say that a carry-over exchange basis would apply. So, the adjusted basis of the assets that are contributed, we are told were $35,000. Again, that's just the carry-over like we normally do. And so, then we know he has to recognize some income or gain as the formula would hold for us for the services being rendered, which we concluded above was $10,000. So, his basis in his partnership interest would be $45,000.