Lois, who is single, transfers property with an $80,000 basis and a $120,000 FMV to Water Corporation in exchange for all 100 shares of Water stock. The shares qualify as Sec. 1244 stock. Two years later, Lois sells the shares for $28,000.

a. What are the amount and character of Lois’s recognized gain or loss?

b. How would your answer to Part a change if the FMV of the property were $70,000?