The Internal Revenue Code has rules regarding the basis for replacement stocks or securities. The code does not disallow the loss permanently. The code provides:

1. The tax basis of the replacement stock must be adjusted to account for the unallowed loss. (This generally has the effect of adding the amount of the unrecognized loss to the cost basis of the replacement stock or securities.) (IRC Sec. 1091(d); Reg Sec 1.1091-2)

2.The holding period of the replacement stock or securities must be adjusted. This is accomplished by tacking on the holding period of the security sold to the holding period of the replacement securities.