Firm CS performed consulting services for Company P. The two parties agreed that Company P would pay for the services by transferring investment securities to Firm CS. At date of transfer, the securities had a $38,500 FMV. Company P’s tax basis in the securities was $25,000.
a. How much income must Firm CS recognize on receipt of the securities? What is the character of this income? What is Firm CS’s tax basis in the securities?
b. How much income must Company P recognize on disposition of the securities? What is the character of the income?
c. Does disposition of the securities result in a deduction for Company P? If so, what is the amount of the deduction?