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1. They pay no tax on the transfer?
They would not.
And assuming that you only gift $10K to an individual in a year, then you don't have to worry about gift taxes either. (or using part of your unified credit)
(Actually $14K is the limit for 2013)

2. The "cost basis" for the stock in the transfer is reset to the value on the day of the transfer?
If it's a stock that has a gain, no.
If it's a cap. loss - sort of...

Unless they have a much lower cap gains rate and you have a very appreciated stock, you're probably better off giving them a check.
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