Research Problem 5. Amanda purchased the following lots of stock of Pearl, Inc. (a pharmaceutical company) during 2010:

Date Number of Shares Cost per Share February 1 100 $150 July 25 100 140 November 3 100 130 On December 20, 2012, Amanda sold the 300 shares for $145 each.

In early January 2013, the Food and Drug Administration granted approval for a new drug developed by Pearl. Expecting the stock to continue to increase in value, Amanda purchased 300 shares on January 5, 2013, for $175 per share.

Amanda calculated her recognized gain as $1,500 ($43,500 amount realized −

$42,000 adjusted basis). The IRS contends that the transaction must be treated as the sale of three lots of stock because of the wash sale rules. As a result, the $500 realized gain on the sale of the second lot and the $1,500 realized gain on the sale of the third lot must be recognized, and the $500 realized loss on the sale of the first lot is disallowed under

§ 1091.

Who is correct?