Choice "d" is correct. The adjusted basis of the stock to Winkler was the
$5,000 fair market value at the time of transfer (that same amount will be
considered compensation in the form of property). The proceeds from the sale
were $7,500. The gain on the sale of the stock was thus $2,500. The $4,000
adjusted basis of the stock to Thompson is irrelevant. Note that there is no
"gift" here even though the word "gave" was used in the question.
Choice "a" is incorrect. There is gain on the sale, effectively in the amount
of the increase in fair market value between the date of the transfer and the
date of the sale.
Choice "b" is incorrect. The $1,000 appears to be the difference between
Thompson's basis and the fair market value of the stock on the date of the
transfer to Winkler. This might be the gain to Thompson, but the question asks
about Winkler.
Choice "c" is incorrect. The $5,000 fair market value of the stock on the
date of the transfer is not the amount of the gain on the sale.
