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

To: Colin Cody who wrote (3854)	6/26/2001 2:29:21 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5810

Colin, In an earlier reply you mentioned specific identification as an alternative. If you have not done the above, then the rule is first-in first-out OR specific identification as noted on the confirmation slip by your broker on the day of the selling trade. If the tax law is now such that identification does not keep you from having to recognize a sale, then the following observation is irrelevant, but if identification of the shares sold is still valid, then it seems to me separate accounts should be sufficient, even w/o mark to market election. I'm throwing it out as a common sense view so you can respond to it from a tax law view. To sell a stock short in an account where you are not long you MUST gain access to shares available for borrow, and you are subject to having those shares recalled at any time forcing you to deliver stock you generally have to buy at market. For these reasons, the shares sold in a separate account are clearly NOT the shares you own in some other account. While I recognize that the IRS may take a different view wrt to taxation, this is not really the same as shorting against the box where your own long shares stand ready to be delivered to cover the short. The only way I can see that the long shares could be identified as the shares sold is if the investor actually elected to deliver the long shares from one account to the other to cover the short. Then it would make sense for the IRS to declare those shares sold as of the day of opening the short. FIFO makes sense in a single account where the broker must deliver shares held by him for the account when a customer sells stock. Otherwise it makes no sense. A related thought just popped up. What if an investor elects to hold his own certificates instead of leaving the "virtual" certificates with the broker. If he sells stock he then must deliver certificates to the broker w/in the settlement period to cover that sale. Can he send whichever certificates he wants and thereby identify the shares sold, or does FIFO demand he send the oldest ones first unless he tells the broker his intentions at time of sale? Dan