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On Tue, 06 May 97 03:56:58 -0600, katzz22 wrote:

OK. Here's the scoop. After getting our finances in order and beginning our portfolio with index funds, we've tiptoed into the UV4+ strategy. Last month, we emailed our new online discount broker (DATEK) about selling the highest cost basis equities first. They said they use a FIFO method of selling shares, but that our taxes are our own concern 'cause they only report sells to the IRS, not buys.

Then last week, we emailed them (again!) with the request that they confirm

receipt of our email which included a standing direction to sell the highest

cost basis shares first. In the email, we made it clear that we would keep our

own detailed records to make the shares identifiable, but that we simply wanted

confirmation from them that they received our request. They emailed back with

'Your email has been received.'

Here's our question: DOES this count? Is this what's meant by written proof of

our direction to our broker? (For more background on this, there's a FAQ in

Are Datek's methods kosher and can we keep our own records for tax

accounting purposes to specifically identify the shares we sell? ...'Discount'

broker isn't much of a discount if we end up shelling out more in capital gains

tax with FIFO. A more expensive regular broker that will keep our specific-ID

request on file might even be better. Right? If that's the case, then choosing

the right broker is a significant part of our tax strategy....

Thank you in advance for any feedback. Any responses are appreciated.

(please post to the board)

--- Nervous first-timers from Arizona>>

Howdy there, AZ neighbors...Greetings from Tempe!!!

Since I was the person who wrote the FAQ that you make reference to (thanks for taking the time to read it BEFORE posting...much apprecited), I suppose that I can weigh in with my thoughts.

Remember that when the tax laws were originally written regarding specific identification, on-line trading and discount brokers were never even imagined. So we are all breaking new ground here. That being said, I would be comfortable in defending your position, should something ever come up to question it.

Does that mean that your position (regarding selling the highest cost basis shares first) is GUARANTEED to be deemed correct by the IRS or the courts? Nope. Does it mean that I believe that you have done everything that you can do in order to notify your broker, and assume that the broker is complying with your wishes? Yup.

So much of the rest will be predicated on your recordkeeping. If you keep good records, recording purchases and sales as they occur, reporting gains and losses on specific shares as they occur, you should be comfortable with your position. If you buy and sell shares "willy nilly", throw the confirmation slips in a shoe box, and wait until the end of the year to reconcile your buys and sells, your position is much less comfortable.

Allow me to relate a personal story to you. I also use a discount broker (Schwab e-trade), and I use their "Street Smart" software. And while most of my stock trades are "buy and hold" positions, there are various times that I do make multiple trades in the same security. I have notified Schwab to sell the highest cost basis shares first always, and I received a "receipt" of that request. But in my situation (using Street Smart), I have the ability to pick and chose which shares that I sell. And I make that decision. Additionally, because of the software, I have immediate feedback as to what my portfolio looks like immediately after any buys and sells, and also have an immediate report of Capital Gains/Losses. My recordkeeping is IMMEDIATE. I'm happy with it. Am I GUARANTEED that none of my stock transactions will be questioned? Nope. Do I feel pretty good about my position relative to the law as written, and the most recent court cases involved? Yup. Do I feel that my position is reasonable and defensible? You bet. Envision a silly picture of Alfred E. Neuman (of MAD Mag fame), with his goofy grin, saying " worry?". That would be me.

Only YOU and your tax prep professional can decide what actions are right for you. YOU must be comfortable with your position. YOU (or your tax pro) should do the research necessary to determine if you believe that you are in a safe harbor position. And only YOU can decide how much potential tax "risk" you are willing to assume, based upon your interpretation of the law. And once you make that determination, you move forward.

But, if you do all of the right things, in my not so humble opinion, I believe that you can make a very defensible case for your positon. Remember, in the Tax Court case in question in the FAQ, the taxpayer had a standing ORAL agreement with the broker. So the court went with an oral agreement and good records. The key is the recordkeeping.

If you would be interested in reading the entire tax court case that was referenced in the FAQ, let me know and I'll be glad to e-mail it to you.

If you have any other questions or comments, please feel free to e-mail me directly at, or post 'em here.

Hope this helps.
TMF Taxes
Roy Lewis

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