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Author: wanttosell Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: wash sale rule Date: 12/31/1999 11:10 PM
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I was wondering if the following example would be considered to be substantially similar securites under the wash sale rule.

On Dec 1 Company A announces that they have reached an agreement with Company B to acquire company B for 0.5 shares of A for each share of B, subject to shareholder and regulatory approval.

I have owned A for some time but bought it at 100/share and it is now at 60/share. However, B is at only 20/share when the deal is announced and is quickly rising. I sell A at a 40/share loss and put all the money into B the same day.

Is this to be considered a wash sale, even though it is two different companies, and the deal is still subject to approval and will be months before it is final?
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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24237 of 121061
Subject: Re: wash sale rule Date: 1/2/2000 12:08 PM
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I'm surprised that none of the wash sale experts responded to you by now.

I think the fact that the deal is not yet done, and is still subject to some uncertainty, gets you out from under the wash sale rule.

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24247 of 121061
Subject: Re: wash sale rule Date: 1/2/2000 2:17 PM
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<<I was wondering if the following example would be considered to be substantially similar securites under the wash sale rule.>>

The short answer: I agree with Eli. Since the deal isn't "done", it could still fall apart. Since it could still fall apart, the securities are not (at least in my humble opinion) "substantially similar".

But...once the deal is done, there could be a time that the securities both trade independently. During that time, I believe that they would then be considered "substantially similar".

<<On Dec 1 Company A announces that they have reached an agreement with Company B to acquire company B for 0.5 shares of A for each share of B, subject to shareholder and regulatory approval.>>

"Reached agreement" is not the same as having the deal dead-bang done. If the deal isn't signed, sealed, and delivered, I don't believe the securities are "similar".

<<I have owned A for some time but bought it at 100/share and it is now at 60/share. However, B is at only 20/share when the deal is announced and is quickly rising. I sell A at a 40/share loss and put all the money into B the same day.

Is this to be considered a wash sale, even though it is two different companies, and the deal is still subject to approval and will be months before it is final?>>

Again, your risk is that the deal won't be finalized. So you are certainly "at risk" with respect to your new "B" shares. No wash sale here...IMHO.

TMF Taxes
Roy

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Author: wanttosell Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24261 of 121061
Subject: Re: wash sale rule Date: 1/2/2000 7:11 PM
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Eli and Roy,

Thank you for your responses, and for confirming my belief that even though the deal was agreed to by the boards of directors of both companies, that since it was still subject to shareholder and regulatory approval, that the stocks of the two companies could not yet be considered to be "substantially similar" by IRS standards.

At this point in time B is being traded in parallel with A right at the .5 level, as A goes up so does B and vice versa. It looks like the deal has avery good chance of being approved and I will make out pretty good by
1. Being able to take the loss on A on my 1999 return, 2. I got my B shares at a discount relative to the A price. and
3. I realy like both companies, the deal, and the furture potential of the new entity AB.

Thanks again.

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