In 2005, 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 2006, Donna sells 100 of these shares to Walter (a family friend) for $100,000. In 2012, Egret Corporation files for bankruptcy, and its stock becomes worthless.

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The Answer of In 2005, 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 2006, Donna sells 100 of these shares to Walter (a family friend) for $100,000. In 2012, Egret Corporation files for bankruptcy, and its stock becomes worthless.

In 2005, Donna Transferred Assets (Basis of $300,000 and Fair