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

To: Kaye Thomas who wrote (2324)	10/13/1999 6:04:00 PM
From: OX	Respond to of 5810

>identification here's a not so radical idea... and I'm sure I'm not the first to think about it... post a msg on SI somewhere when you sell, specifying which lot you want matched up with it. SI seems to keep msgs forever and you can't edit posts past 15 minutes. this is not a recommendation, but for my tastes, if I thot I needed to do so, I'd just send myself an email to myself on another email system w/ the lot matching info... the more machines in between the better... making sure that the receiving machine keeps a full list of the email headers w/ timestamps, IP addrs, etc. Someday, the IRS will actually accept this is my guess.

To: Kaye Thomas who wrote (2324)	10/13/1999 6:40:00 PM
From: V.	Respond to of 5810

Hi Kaye, Thanks for the critique of my post. A couple of comments: <<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.)>> I was referring to the trading scenario but I agree with the first part of your comment above. If the shares can be identified by the date they were purchased, that would infer that there is only one lot on that date. In stating the price and date, one makes clear exactly which shares are being sold if there were multiple buys of the same security (and same quantity of shares) on the same date. I'm unclear regarding your comment that identification is "rarely if ever an issue for "... do you mean that in your experiences, traders typically use FIFO? Otherwise, it would be very difficult to match trades by date only as many traders flip the same quantity (say 1000) of shares many times in a day. The only way to ID them definitively in that case would be by the time of the trade or by the confirmation number of that trade. <<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.>> I disagree in the case of active traders as I mentioned above, and was told by the IRS to use confirmation numbers to ID shares. However, I do concede that had I'd likely have gotten different responses from different agents. There seems to be a lot of ambiguity in the IRS code. With regard to less active traders or longer term investors, I would agree that confirmation numbers aren't needed. However, I do think that over-documentation is preferable to under-documentation. Also, it's just easier to say, "Sell the shares bought on confirmation #wxyz" than it is to say, "Sell the 1000 share lot of ABC bought on this date at this price at this time" when a trader's bought the same issue say 5 times in one day. 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. This is not correct from what I recall though I've not kept up-to-date on tax issues the last few years...perhaps the regulations have changed. However, I absolutely remember that a taxpayer cannot switch between different methods in one tax year! A taxpayer must select one method and use it on all trades in one tax year otherwise the most tax beneficial method per each trade would likely be selected by the filer. This is not what the IRS is all about. <g> The taxpayer must also declare to the IRS if he elects to use the ID of shares method by simply writing that on the Schedule D. And, as I said, if the taxpayer wants to return to the FIFO method, he must request this in writing from the IRS. The change to ID of shares from FIFO requires no permission from the IRS, but the change from ID of shares back to FIFO requires permission. Again, I definitely remember reading this in some IRS document a while back and don't think I've confused it with handling of mutual funds. I will do my best to locate that source and post my findings whether or not my memory serves me well but it might take a looooooong time... :) If you could provide your source - if it's handy - then perhaps I won't need to go looking for mine. <gg> Thanks for the feedback, Kaye. P.S. For the thread, here's the tax code with reference to our discussion, FYI: Publication 550 - "Investment and Income Expenses" states: If you have left the stock certificates with your broker or other agent, an adequate identification is made if you: 1) Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and 2) Receive a written confirmation of this from your broker or other agent within a reasonable time.