Lee, an attorney, uses the cash receipts and disbursements method of reporting
A client gave Lee 500 shares of a listed corporation's stock in full satisfaction of a $10,000 legal fee the client owed to Lee. This stock had a fair market value of $8,000 on the date it was given to Lee. The client's basis for this stock was $6,000. Lee sold the stock for cash the next year. In Lee's income tax return, what amount of income should be reported in connection with the receipt of the stock?
Answer:
$8,000
Explanation:
Based on the information given we were told that the stock had a FAIR MARKET VALUE of the amount of $8,000 on the date it was given to Lee which therefore means that in Lee's income tax return, the amount of INCOME that should be reported in connection with the receipt of the stock will be the FAIR MARKET VALUE of the amount of $8,000.
How did Lee report the income in his tax return when he received the stock as payment?
Lee should report $8,000 as income in his tax return when he received the stock as payment, based on the fair market value of the stock at the time it was given to him.