Anyone....is there a tax advantage, real or otherwise, by using multiple brokers for boxing purposes?
In theory, no. You'll get a 1099 for all security sales from each broker. This will reflect all shorts opened and closed in the same year (taxable in that year), shorts opened in the tax year but not closed (not taxable until closed), and all longs closed during the year (including boxes) (taxable in that year). You are supposed to manually adjust (with an explanatory schedule reconciling to the 1099s) for shorts that are open over year-end adding those that were opened in the prior year but closed in the current one, and deleting those that were opened in the current year and not closed by year-end. If you do these adjustments then there is no tax advantage. If you don't, you could probably create one that the IRS wouldn't notice unless they audited you, and maybe not even then.
By the way, your broker gave you an overly simplistic answer on taxes. He is right that boxing can invoke the buying counterpart of what's known as the "constructive sale" rule (I've never seen it referred to as a constructive buy or a constructive cover, but that might be the terminology). This is the rule that says that shorting against an open long (another form of boxing used to protect long-term gains against short-term downward movements) can be construed (constructed?) as a sale, and it applies in reverse on shorts. You used to be able to box over year-end to move the taxes, but the constructive sale rule eliminated that advantage.
As with shorting against the box on longs, boxing short positions may or may not close the short for tax purposes, it can depends on factors like how long held the short, how long you hold the box, and what time of year it is. I'm not an accountant but I looked into this in some detail a year or so ago when I had a big issue, and went to the IRS regs as well as reviewing my interpretations with my accountant.
The main advantages of boxing are maintaining the loan of a hard-to-borrow stock during periods of anticipated price appreciation, and (in reality at most brokers or if you use two brokers, even though the rules say otherwise) avoiding the uptick rule when you unbox.
The advantage of having it at one broker, depending on the broker, is lower margin requirements, often 5-10% of the boxed position. Not all brokers do this, however, and some brokers (like E-trade) don't have their systems programmed to understand boxing at all (or at least didn't, last time I tried).
Regards,
Fund |
