The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Wash sales between taxable and tax-deferred||Date: 11/27/1999 4:37 PM|
|Author: TMFTaxes||Number: 21865 of 124300|
TMF Taxes said...
<<But more importantly, there are many court cases out there that say that if you have "control" of the account (as in a self directed IRA account) that the account will be treated as "yours" for purposes of wash sale (and other) rules. I'll be happy to provide some citations if you would like, Jack. Just let me know."
And Jack replied...
<<Would like to read the most recent cases if you have the citations. My understanding is that the transactions must be "taxable" or you have contradictory basis applications between taxable and nontaxable "taxpayers.">>
To which I sez...
First...we disagree on the interpretation of section 1091. There is nothing there (in my reading) that tells me that the transaction must be taxable. I'll reprint 1091(a) here so that we can read it together:
<<In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term "stock or securities" shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities.>>
Note in the parenthetical comment where it says "by purchase or by an exchange on which the entire amount of gain or loss was recognized by law". That says to me that the wash sale rules could be triggered by EITHER a purchase OR by an exchange on which the entire amount of gain or loss was recognized by law". I don't think that the second part of the statement necessarily applies to the first.
Now...let's look at the "related party" or "controlled group" issues. I think that you'll agree that Code Section 1231 states that various losses will not be recognized if they are made between "related taxpayers".
When the words "related parties" are used, many people think of "family". But the law goes far beyond that. Additionally, the "related party" rules even go so far as to identify when somebody "constructively" owns shares of stock. A close review of those provision indicate that related parties include:
1) A grantor and fiduciary, or the fiduciary and beneficiary, of any trust.
2) Fiduciaries of two different trusts, or the fiduciary and beneficiary of two different trusts, if the same person is the grantor of both trusts.
3) A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is directly or indirectly owned by or for the trust, or by or for the grantor of the trust.
4) A corporation and a partnership if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital interest, or the profits interest, in the partnership.
5) Two S corporations if the same persons own more than 50% in value of the outstanding stock of each corporation.
6) Two corporations, one of which is an S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation.
7) An executor and a beneficiary of an estate (except in the case of a sale or trade to satisfy a pecuniary bequest).
8) Two corporations that are members of the same controlled group (under certain conditions, however, these losses are not disallowed but must be deferred).
9) Two partnerships if the same persons own, directly or indirectly, more than 50% of the capital interests or the profits interests in both partnerships.
Does any of this sound like it could be applied to a self-directed IRA relationship and the owner? I