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Subject:  "Intent" on constructive sale Date:  11/8/1999  11:07 PM
Author:  CarlErikson Number:  20738 of 127549


This question is similar to one I previously posted, but maybe it is a little more clear:

Suppose I hold 100 shares of MSFT long and have owned the shares since 1995. Now, because I am an unfoolish active trader, I decide to short 700 shares of MSFT for trading purposes, and not to do a "short sale against the box." I cover these 700 shares of MSFT a few days later (within the '99 tax year). Does the fact that the number of shares differ in these transactions (100 vs. 700) make any difference in terms of whether there was a "constructive sale" due to the first 100 shorted shares of the transaction? I.e., can I prove that my intent was to short-term trade these 700 shares and not touch my long-term holdings in the process?

Also, suppose the 100 shares of MSFT was at an account at Schwab but that I shorted the 700 shares using a different acount such as E*Trade... would that make a difference at all in determining whether a "constructive sale" actually occurred?

I am coming to the conclusion that "specifying" shares only really means anything when you are talking about selling long positions. The current tax-laws appear to discriminate heavily against short positions. I.e., what I'd really like to do in this situation is to "identify" the 700 share short transaction and subsequent cover as a separate trade from my long-term holdings. It doesn't appear that this is possible with the current tax laws... please correct me if I'm wrong!

Thanks for reading this all the way through,
Carl Erikson
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