The case Mark mentioned is FAA v. Crow and Pearson:
http://www.ntsb.gov/legal/o_n_o/docs/Aviation/4008.pdf
The issue in this case is not that the two of them were logging PIC- one as the CFI and the other as the "student". The problem is that the person acting as CFI did not log anything in the other's logbook as required by FAR 61.189, so, in essence, there was no real instruction going on. When the pilots realized this they sent in "amended" logbooks.
"Comparing the two logs, it is evident that there are virtually no entries in the "as flight instructor" column or the "dual received" column in Exhibit C2; however, there are many in the same columns of C17."
"Pearson testified that he and Crow updated their logbooks together in November 1992, by comparing notes that they had kept on pocket calendars. The entries they corrected were for flights made from April 1991 to September 1992.
Unfortunately, they did not bring the calendars (which allegedly had more detailed information about instruction given and received and were updated regularly) with them to the hearing."
My emphasis. According to the judge if the pilots had presented this evidence that instruction had, in fact, occurred they probably would have been okay.
"Respondents argue that they intended to complete the flight entries and sign the logbook to indicate when instruction was
given, but that they were behind in their paperwork.9 It is the Administrator's position that respondents never intended to
correct the logbooks and only did so in an effort to justify having identical PIC times after they got caught. Thus, he asserts, they intentionally made false entries in their logbooks. The law judge agreed."
So basically it comes down to how you log it. If you log CFI time you
must IAW 61.189 sign the logbook of the person to whom you are giving instruction. The regulation does not say should, it says must. So if you give
ANY kind of instruction (or ground training for that matter), an entry must be made in the recipients logbook. Does not matter if it is an aircraft check out, tail wheel endorsement, space shuttle training.
To the OP you are perfectly legal logging this time as instructor time and PIC time. The person you were checking out can "log" this time as PIC as I assume they were the sole manipulator of the controls. You
must, however, have made an endorsement in their logbook. In addition I would recommend giving the other pilot Wings credit for what they completed to have an additional record of what occurred and proof that instruction did, in fact, take place.