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Subject:  Re: shorting a long position Date:  12/29/1998  9:03 PM
Author:  TMFTaxes Number:  7746 of 124284

[[ Hi All,]]


[[ Question:

If I currently own a stock long, can I sell short the same number of shares and
neutralize my position? For example, if I own 200 shares or AOL, can I short
the 200 shares at the same time?]]

Sure. But you may learn much more first hand about the new laws regarding constrictive sales of appreciated financial position. In effect, the law says that if you "short against the box" (which is what you are really talking about), Uncle Sammy will treat this "neutral" position as if you SOLD the sares.

Pursuant to changes made by the Taxpayer's Relief Act of 1997, taxpayers must recognize gain (but not loss) upon a constructive sale of any appreciated financial position in stock, a partnership interest or certain debt instruments. A constructive sale occurs when the taxpayer enters into one of the following transactions with respect to the same or substantially identical property:

• a short sale,
• an offsetting notional principal contract, or
• a futures or forward contact.

For a taxpayer who has one of these transactions, a constructive sale occurs when it acquires the related long position. Other transactions will be treated as constructive sales to the extent provided in Treasury regulations.

The constructive sale rules are generally effective for transactions e