Early in 2020, Wally incurred a $75,000 loss on the sale of all the stock he owned in Fire Corporation. Before the year ended, Wally was thinking of also selling all the stock he owned in Ice Corporation. Both Fire and Ice meet all the Section 1244 stock requirements. Unfortunately, Wally would incur another $75,000 loss on the sale of the Ice Corporation stock, but if he does not sell the shares now, he may not be able to find another buyer in the future. Assume Wally’s only income is $250,000 in taxable W-2 wages, and he is not married (single filing status).

a) What is Section 1244 stock? Explain the requirements of Section 1244 stock to somebody who is not familiar with the concept. What advantage does Section 1244 treatment potentially provide to an individual taxpayer filing a Form 1040 and in what specific circumstances?

b) Assume that Wally had no other property transactions in the current or previous years except that he followed through with his plan to sell all the stock he owned in Ice Corporation at the expected $75,000 loss. Show your calculation of the total amount of Fire and Ice losses that Wally can deduct on his Form 1040 for the 2020 tax year. Be certain to clearly identify both the amount and character of the losses and any carryforwards to future tax years.

c) What specific tax planning suggestion(s) can you offer to Wally for increasing the tax benefits of these losses? Did he make the correct decision to sell the Ice Corporation stock last year from a tax perspective? From a nontax perspective?