Rule: IRC Section 267 controls the nonrecognition of realized losses on sales or exchanges of property to related parties. The most common related parties for individual taxpayers are members of a family (although there are certainly many other examples).

Choice "d" is correct. The loss realized on the transaction by Terry is $4,000 ($8,000 - $12,000). This transaction appears to qualify under Section 267. "Relative" is not defined in the question. Section 267 limits "family" to brothers and sisters, spouse, ancestor, and lineal descendants. However, the definition of relative is really irrelevant if the question is read closely. The question wants to know the relative's gain or loss, not Terry's gain or loss. Since all the relative did to this point was to buy the stock, the relative has no gain or loss.

Choices "a", "c", and "b" are incorrect, per the above explanation.