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Requirement c. How would your answers to Parts a and b change if the stock Tiger purchases during 2018 is Southern nonvoting, nonconvertible, preferred stock instead of Southern common stock? Are nonvoting, nonconvertible preferred stock substantially identical to common stock in the same corporation? Under this scenario, would Tiger recognize a gain or a loss? Under this scenario, what is the amount that Tiger would recognize? Mr. Tiger Part (a) On October 12, 2018 Tiger Corporation incurs a capital loss of $320,000 - $330,000 = $10,000 However as per the wash sale rules, Total number of shares of Southern Corporation purchased by Tiger Corporation within 30 days before (4,000) and 30 days after the sale (3,000) = 7,000 shares. Therefore 7,000 / 10,000 i.e. 70% of the loss [ $10,000 x 70% = $7,000] will be disallowed. Hence, Tiger Corporation can only recognize a loss of 30 % , i.e $10,000 x 30% = $3,000 Amount Gain or Loss Gain or loss to be recognized $ 3,000 Loss Part (b) Basis of stock Tiger conntinues to hold = Purchase price + disallowed loss Basis in 4,000 shares purchased on October 3, 2018 = $120,000 + [$7,000 x 4,000 / 7,000] = $120,000 + $4,000 = $124,000 Basis in 3,000 shares purchased on November 1, 2018 = $88,500 + [$7,000 x 3,000 / 7,000] = $88,500 + $3,000 = $91,500 As per Wash Sale Rules, the holding period of the original security gets tacked onto to the holding period of the replacement security. Hence, the holding period for both of these blocks of shares will start from date of purchase of original shares i.e. March 8, 2011. Basis Holding period begins 4,000 purchased on October 3, 2018 $ 124,000 March 8, 2011 3,000 purchased on November 1, 2018 $ 91,500 March 8, 2011