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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121482  
Subject: Re: IRS opinion of Wash sales: taxable and IRA Date: 12/8/1999 12:30 AM
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Your questions to the IRS: This question concerns Wash sales of stocks between taxable and tax-deferred accounts:

1) Jan 15th, 1999: In a taxable brokerage account, I purchase 100 shares of XYZ for $2 per
share (total = $200)

2) Dec 1st, 1999: I sell the 100 shares of XYZ purchased in step (1) above for a loss, say at
$1 per share (loss = $100).

3) Dec 1st, 1999: I purchase 100 shares of XYZ in a regular IRA for $1 per share.

Question 1: Since the loss occurred in a taxable account, can I use it to adjust the basis in
the repurchased shares in the IRA?

Question 2: Can I take the $100 as a short term capital loss on my 1999 tax return?

Question 3: If I switch the accounts in the above example (make the original purchase in the
IRA, then sell at a loss in the IRA, then immediately repurchase the shares in a taxable
account, may I adjust his basis in the repurchased shares in the taxable account for the IRA
loss?


And the reply from the IRS

To answer your Question 1 and 2 you would recognize a 100 short
term loss in 1999 and have a basis in the IRA of 200, assuming you
are using the assets from the IRA to make the purchase. In Question
3 you would not show a loss in the IRA. You have a basis of 200
for the 100 shares. Gain or loss at this point depends on what you
do with these 100 shares after you purchased them.


I hope you aren't relying on this from the IRS for anything. I think you didn't read it in respect to who wrote it. They again managed to answer a question in such a way as to completely confuse anyone reading it by bringing up 3 other conflicting but not applicable issues but not answering your question directly. I have found the IRS e-mail service a waste of time.

1. They said to add the adjustment to the basis of the IRA stock, which means that you must have adjusted out the loss on your D-1. Effectively you couldn't use the loss.
2. They didn't answer question #2 directly. They said you would "recognize the $100 loss in 1999". If you think this means to take the loss, why do they tell you to add it to the basis of the IRA stock? The Publication 550 instructions tell you to recognize that this is a Wash Sale loss and make an adjustment, adding the amount of the adjustment to the basis of the Replacement Shares. They referred you to Pub 550 and told you part of the answer.
Reread what they said about the basis in your IRA. Is this a non-deductible contribution? Is this a Loss to be recognized? What can you do with the shares after you sell them in an IRA?

Sorry, the question still is is an IRA a different entity you don't control, and/or is it the IRS intention to prohibit you from ever recognizing the loss when they originally intended only to defer it. Also, what you are describing about selling the IRA stock after 31 days and repurchasing it outside the IRA is a direct intentional sham to avoid another tax avoidance scheme the IRS intended to stop. Obviously just my opinions. Ed
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