Your supervisor has asked you to research his clients stock transaction to ensure it is treated correctly on their tax return. She has outlined two major issues she would like you to find answers for. Using the Internal Revenue Code and other valid sources, write a short memo to answer her questions.

To: CPA Boss

From: CPA Candidate

Re: XYZ Stock Fiasco Date: April 10, 2022

Facts: Jack and Sally own 1,000 shares of XYZ stock. They originally purchased the stock on August 7, 2008, for $20/share. On March 12th they sold all 1,000 shares of XYZ for $10/share. On April 1, 2021, Jack heard that XYZs stock price was going to skyrocket and purchased 1,000 new shares of XYZ for $13/share.

1. Can the taxpayers claim a capital loss on the XYZ stock they sold? If so, how much may they deduct on their 2021 return?

2. What is their basis and holding period of the stock purchased?