Question - In 2000, Donna transferred assets (basis of $300,000 and fair market value of $250,000) to Egret Corporation in return for 200 shares of § 1244 stock. Due to § 351, the transfer was nontaxable; therefore, Donna's basis in the Egret stock is $300,000. In 2001, Donna sells 100 of these shares to Walter (a family friend) for $100,000. In 2007, Egret Corporation files for bankruptcy, and its stock becomes worthless.
a. How much loss may Donna recognize in 2001 and 2007? What is the nature of this loss? [Note: Donna is married and always files a joint return.]
b. How much loss may Walter (a single taxpayer) recognize in 2007, and what is the nature of such loss?