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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Walter C. who wrote (2300)	9/21/1999 1:03:00 PM
From: Kaye Thomas	Read Replies (2) \| Respond to of 5810

A convertible note may or may not be (and I would assume generally isn't) a substantially identical security to the stock into which it is convertible. (It might be considered substantially identical under economic conditions that caused its value to float exactly in tandem with the value of the stock.) *However*, even if it isn't substantially identical, it can still bring the wash sale rule into play. The wash sale rule applies if you acquire substantially identical securities, or acquire an option to acquire substantially identical securities. In various contexts the IRS has held that convertible securities are to be considered options to acquire the securities into which they convert. In particular, they so held under the wash sale rule for convertible preferred stock, and in other contexts they have so held for convertible debentures. Therefore, I would expect the wash sale rule to apply in the situation you describe, even if the note is not substantially identical, because the conversion feature means that it includes and option to acquire substantially identical stock. Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com