Startup Company - Promises the moon and the stars

[ILLMAS]

Let's say XYZ is a startup company and you are consultant working a project, you invoice them $10K, and they come back and say, we are startup company and really don't have all the money to pay you, however we can pay you $500 now and give you 1,900 shares of stock at $5 (=$9,500) in XYZ.  After they break you down, you say yes, whatever, and take the $9,500 worth of stock and expect to become a millionaire soon. 

Now, my question is, should XYZ issue a 1099 for $500 or $10,000?

Thanks

[Lion EA]

$10,000 was compensation for the IC's services. The IC has $10,000 income and a stock basis of $9,500. Off the top of my head.