Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
<Since they theorize that events within an IRA can nullify the tax effects of transactions executed outside the IRA, the converse must also be true: i.e. the subsequent sale of those shares within the IRA may trigger a tax event outside the IRA, i.e. recognized gain or loss in the year of sale.

Proponents of Edcosoft's theory will say that cannot happen under IRA rules but they cannot have it both ways. Either the IRA is a discrete tax universe or it is not.>

Onuallainxx:

Thank you for taking the time to plainly state your case. This one has gone round and round here for a long time now. I agree with Phil and others that it is always dangerous to apply the word logical to anything involved with the tax code. I also agree with the general sentiment that a wash sale in differently titled taxable accounts could be a difficult argument to make (although from your references one could still attempt to do so).

Regarding the IRA, I stand shoulder to shoulder with you. The tax codes are monstrous enough already. I believe that those taking the opposite postion are reading things into it that just aren't there. Whether an individual holding within my IRA becomes a 10 bagger or runs down to zero is of no interest to the IRS. If my dividends are qualified, not qualified, a return of capital, a section 1250 or a distribution of any other kind is irrelevant to the IRS (and me too). Whether I have held for 10 minutes or 10 years does not matter to them. Everything that goes on within the IRA is self contained. The only time that anything becomes an issue is when I take a distribution out of the account. Then the IRS becomes very interested and I had better follow the guidelines closely. Note that for this argument I am assuming that one has a somewhat diversified IRA and didn't go with 100% Enron or WorldCom stock. I will admit that those stupid enough to put every penny of their IRA into a stock that goes to zero could generate a modest loss covering their original contributions. I am leaving those few and hopefully far between IRA holders out of this discussion.

Your example of the share sale and purchase is a good one. Your conclusion is right on the money. Either the IRA is self contained or it is not. If one decides that it is not, then I would guess that Linda Blair's famous head spin will be nothing compared to the spinning heads that would occur to millions of IRA holders. If a purchase inside an IRA can have an effect on tax considerations outside of it, then the sale of that same holding at a later date should also be a relevant event. Of course as things stand now (and since IRA's were created), there is absolutely no reporting mechanism of any kind for all such transactions. Attempting to report such a transaction on your 1040 would probably cause immense confusion and irritation for the IRS employee trying to process your return. I believe that doing so would greatly increase your odds of an audit as you would be supplying information that the IRS cannot match up with any of the data that your brokerage firm reported to them.


BRG
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.