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I think the IRS position is technically correct for two reasons: First, there is nothing to prevent a taxpayer from moving shares from one broker to another.

True. That's why I said to apply FIFO to the universe of shares held in the account at the time of sale. It doesn't matter where they were bought, just where they reside when the sale happens.

And there is no way for the IRS to know, absent submission of every brokerage statement during the holding period, that this didn't happen.

Since they don't have any purchase information except what the taxpayer provides on Schedule D, looking at records is the only way they're ever going to be able to verify that the taxpayer did it right. The taxpayer should have records of what was in the account before and after the sale and purchase confirmations for all the shares, so I don't see a problem any greater than that of verifying FIFO based on all the shares the taxpayer owns.

I just don't see how the IRS can reasonably say that you sold shares from account YYY when you clearly sold shares from account XXX. Actually, having multiple accounts at one discount broker would be a way of coping with their inability (or refusal) to give specific share confirmations.

Phil Marti
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