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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121146  
Subject: Re: Wash Rule/SEP Date: 7/8/1999 11:53 PM
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[[ OK!! I couldn't find this in FAQs.]]

Sorry...but thanks for taking the time to research your issue first. It's really appreciated.

[[ I need to fund my SEP prior to my time extension for 98 IRS on 8-15. I have
shares in a regular trading account that have a capital loss. Is it still a wash if I
sell shares and move the funds into the SEP, then repurchase (within 30 days)
for holding in the SEP?]]

I believe so, yes. Based upon the "related party" rules and the fact that you control both accounts. I believe (as do many other tax pros) that the IRS could make a very strong claim that this would be considered a wash sale. And I think they would be right.

[[ I expect so but maybe I got lucky and found a loophole.]]

I don't think so. I certainly would not want to be the one testing it in court (or even at IRS appeals). It's a real lose-lose situation if it all falls apart. I personally don't think that it's worth the risk. But you get a "E" for effort, and an "A" for creative thinking.

[[ As I don't think I need to report Capital Gains in the SEP how would IRS know
if my transactions only show a capital loss in my regular account? This is only
hypothetical as I would never cheat on my taxes.]]

I realize that you would never do anything in contradiction to the IRS rules and laws. I never thought that you would.

HOW would they find out? Potentially via an audit. But there will be no bells and whistles that will go off in some IRS office if you undertake the transaction...just like none of them go off when you underreport your rental income, or inflate your business expenses.

But the "no cop, no stop" method of tax planning can be pretty painful...especially when all of a sudden a cop shows up when you least expect it.

TMF Taxes
Roy
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