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 Market