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To: Jim Willie CB who wrote (24512)	12/12/2000 10:21:51 PM
From: djia101362	Respond to of 65232

JWCB and thread...Wash Sales 101 Here's technical stuff of wash sales below. I believe I was incorrect in earlier stating that sale of a stock and the purchase of the underlying call or sale of the underlying put would be considered a wash sale. After doing further research, a stock and it's underlying option do not appear to be considered "substantially indentical" securities. This may be of significant importance to high tech investors and in particular JDSU/SDLI shareholders. As stated below, the separate stock of companies subject to a merger agreement are considered to be "substantially identical" and therefore anyone that sold either JDSU or SDLI at a loss and purchased the other company within the restricted period would be subject to the wash sale rules. There is also some ambiguity in the tax law when it comes to options re: selling a particular strike and expiration date at a loss and buying a different strike or expiration date. Section 1091(a) disallows any deduction under §165 for any loss claimed from the sale or other disposition of "shares of stock or securities," where within a period beginning 30 days before such sale or disposition and ending 30 days afterwards (herein referred to as the "61 day period") the taxpayer has acquired, by purchase or by an exchange on which the entire amount of gain or loss was recognized, "substantially identical" stock or securities. The disallowance also applies where within the 61-day period the taxpayer has entered into a contract or option to acquire such substantially identical stock or securities. As a general rule, the term "substantially identical" means, in the case of stock, stock of the same class issued by the same corporation. However, in some situations, stock issued by different issuers may be treated as substantially identical. For example, in circumstances where an exchange of the stock of corporation X for stock of corporation Y will be consummated in the near future (pursuant to a merger or acquisition) and the prices at which the stocks are traded reflect this, they may be treated as substantially identical. In Gantner v. Comr., decided shortly before the enactment of TAMRA, the Tax Court confirmed the general consensus of most commentators that the term "stock or securities" did not include stock options. Thus, the wash sale rule did not apply to the sale by the taxpayer of call options followed immediately by a purchase of call options on the same stock with identical terms (exercise price, expiration date). This decision appears to have raised the concern of Congress that artificial tax losses could be claimed in circumstances similar to those involved in Gantner. To remedy this, the statute was amended to provide that the term "stock or securities" includes "contracts or options to acquire or sell stock or securities," except as provided in regulations. Note that this language does not automatically make an option or contract to buy or sell stock substantially identical to the underlying stock. It applies only where a loss is claimed from the sale of such option or contract and within the 61-day period a substantially identical option or contract is acquired in a taxable transaction. As is discussed further below, Congress provided no guidance for the determination of whether an option or contract is substantially identical to another, a matter fraught with considerable technical difficulties.