From the IRS publication: Investment Income and Expenses (Including Capital Gains and Losses) for use in preparing 2004 returns.
Found Here

You cannot deduct losses from sales or trades of stock or securities in a wash sale. A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade, or
3. Acquire a contract or option to buy substantially identical stock or securities.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities. The result your basis in the new stock or securities. Thisadjustment postpones the loss deduction until the disposition of the new stock or securities.
Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.