Carmen and Carlos form White Corporation. Carmen transfers cash of $100,000 for 100 shares in White. Carlos transfers property (basis of $20,000 and fair market value of $80,000) and agrees to serve as manager of White Corporation for one year; in return, Carlos receives 100 shares in White. The value of Carlos's services is $20,000. White Corporation can deduct $20,000 as compensation expense for the value of the services Carlos will render.

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This statement is true. White Corporation can deduct $20,000 as compensation expense for the value of services Carlos will render. The transfer of property by Carlos will result in a taxable gain of $60,000 ($80,000 - $20,000 basis). Carmen's transfer of cash in exchange for shares will not result in a taxable event.

Carmen and Carlos Form White Corporation