When Pheasant Corporation Was Formed Under § 351, Kristen Transferred

Multiple Choice

When Pheasant Corporation was formed under § 351, Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock. Kristen's basis in the Pheasant stock is $26,000. Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless. Kristen, who is single, owned the stock as an investment. Kristen's loss is:

A) $26,000 capital.
B) $22,500 ordinary and $3,500 capital.
C) $3,500 ordinary and $22,500 capital.
D) $26,000 ordinary.
E) None of these.