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Subject:  Re: "Intent" on constructive sale Date:  11/9/1999  8:37 PM
Author:  TMFTaxes Number:  20809 of 127549

<<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?>>

Nope...not at all. But as I pointed out in my earlier post, you may still be able to beat the contstructive sale rules if you do certain things. Read my series of posts on the constructive sale rules in the Taxes FAQ area for much more detailed information.

<< 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?>>

Nope least not the way I understand the constructive sale rules.

<<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?>>

Nope again...your entire portfolio is in play...regardless of which broker holds your shares. And, not only that, even trading in an IRA account may cause you problems with both the constructive sale rules AND the wash sale rules. At least in my opinion...and the opinion of may other tax pros.

<<I am coming to the conclusion that "specifying" shares only really means anything when you are talking about selling long positions.>>

Basically correct. Specification will not necessarily help you avoid the constructive sale rules OR the wash sale rules.

<< 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!>>

Again...please read my series of posts on the constructive sale rules (and also the wash sale rules while you're at it) in the Taxes FAQ area. You'll get a MUCH better idea of the procedures behind the law, and potential ways to "beat" the system.

After your reading, if you then have any additional question, feel free to post 'em here.

TMF Taxes

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