Tim is a real estate broker who specializes in commercial real estate. Although he uses buys and sells on behalf of others, he does maintain a portfolio of property of his own. He holds this property, mostly unimproved land, either for investment or for sale to others.

In early 2014, Irene and Al contact Tim regarding a tract of land located just outside the city limits. Tim bought the property, which is known as Moore farm, several years ago for $600,000. At the time, no one knew that it was located on a geological fault line. Irene, a well-known architect, and Al, a building contractor, want Tim to join in developing the property for residential use. They were aware of the fault line but believe that they can circumvent the problem by using a newly-developed design and construction technology. Because of the geological flaw, however, they regard the Moore farm was being worth only $450,000. Their intent is to organize a corporation to build the housing project, and each party will receive stock commensurate to the property or services contributed.

Tim agrees to join the venture as long as certain modifications to the proposed arrangements are made. The transfer of the land would be structured as a sale to the corporation. Instead of receiving stock, Tim would receive a note from the corporation. The note would be interest-bearing and become due in 5 years. The maturity value of the note would be $450,000 - the amount that even Tim agrees is the fair market value.

What are the tax consequences of Tim's suggested approach?