I'm not a CPA either, just a plain country lawyer, but I'll take a crack at correcting errors in this message.
My first point would be that in my view it isn't necessary to identify by price and date purchased unless that's the only way to make it clear which shares you're selling (because you bought multiple lots on the same day). Most investors don't buy multiple lots in a single day. (I know many day traders do, but identification is rarely if ever an issue for them.) So the most common way to identify is by date: Sell the shares bought March 7, 1996.
I take the view that it would be equally valid to say something like this: Sell the shares I inherited from Uncle Max. And you can do that even if the broker has no idea what shares you inherited from Uncle Max.
The reason is that the broker's only role in all this is to provide third-party confirmation that you made a contemporaneous election of which shares you were selling. The broker doesn't have to transfer specific shares. The regulation makes this clear: "Stock identified pursuant to this subdivision is the stock sold or transferred by the taxpayer, even though stock certificates from a different lot are delivered to the taxpayer's transferee."
As a consequence, it doesn't matter at all if the shares are held in street name. You don't have to deal with confirmation numbers or anything of the sort. The only situation where you deal with different rules is where you (not your broker) have physical custody of the certificates. In this situation, if you want to sell the stock you inherited from Uncle Max, you have to transfer the certificate representing those shares. There's a further rule to cover the situation where you have a single certificate representing multiple lots: in this case, you simply identify the shares sold on your own records.
It's true that it's difficult or impossible to identify when you trade online, because online brokerage firms have been too ignorant or lazy to provide this capability. All they would have to do is give you a box on the form you fill out for sales in which you can identify shares, and then print the contents of that box on your confirmation slip. So far, none of the online firms seem to understand this.
Another point of correction: you can switch back and forth between FIFO and specific identification as often as you like. You're not bound by either one, and you can use different methods for different trades in the same year. The only time you're bound by a method is if you choose one of the averaging methods for mutual funds. You have to stick with that method for as long as you hold that fund.
I'm not aware of any requirement to say anything on Schedule D about specific identification. You simply report the proper acquisition date and basis for the shares you identified.
Those interested in reading more on this fascinating topic may read the following pages:
fairmark.com
fairmark.com
Kaye Thomas, author
Fairmark Press Tax Guide for Investors
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