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To: Richard Nehrboss who wrote (34814)	1/11/1999 3:30:00 PM
From: Redman	Read Replies (2) \| Respond to of 95453

You are exactly right. Because you have to cover your short with newly bought shares, nothing happens to your time basis in the "original" shares, but you would have to hold the original shares for the four month holding period after the short is covered. Again, short against the box would only work for what you are talking about, nervousness in the market temporarily----But wanting to hold onto the shares for the long haul. If you are willing to keep your long position for four months after the short is covered, then this strategy will work for you. It won't work to protect gains or defer, because (1) the time clock stops on the "original" shares when the short is put into place, and (2) you will have to hold a net long position on the "original" shares for four months after you cover--thereby still assuming market risk. Pretty clever of the IRS. Again, check with your accountant before you do anything. Red

To: Richard Nehrboss who wrote (34814)	1/16/1999 5:29:00 PM
From: Richard Joslin	Read Replies (1) \| Respond to of 95453

Tax rules and caveats re shorting vs box: If you have an appreciated long and you subsequently short, it is treated as a constructive sale of the long position. The gain recognition can be avoided if the short is subsequently closed via market purchase (no later than 1/30 of the following year)and the long position is subsequently held unhedged for 60 days following the closing of the short sale. Unhedged is strictly defined - no puts, no deep-in-money calls. If a new short or put, etc is entered into during the 60 day period, gain would be taxable as of the date of the original short sale. The IRS will allow sucessive shorting and covering in the market provided that at the end of the year or by 1/30 of the following year, the short is closed and the long is held unhedged. This will be clarified in regulations which should be issued in the next few months. Caveat: If you hold long stock more than one year when you short against the box, any loss on the short cover is LONG term. This rule makes sense if you consider that the appreciation in the long after the position is boxed will be treated as long term gain. It is appropriate to match the loss on short with the appreciation on the long. Caveat: If you hold long stock for LESS than one year when you short against the box, the holding period of the long is TERMINATED, not suspended. This termination of holding period rule also applies to long vs. put, long vs. deep-in-money short calls. There are ways to hedge risk and avoid the constructive sale rules - a common technique is a collar - long put and written call. Neither position can be in the money; in aggregate, both positions should be out of the money by 20%. Depending on the length of the option and depending on IRS guidance (see above), it may be possible to be out of the money only 15% on the collar. Other examples of constructive sales: Appreciated short vs. long Appreciated put vs. long Appreciated call vs. short Constructive sale rules effective 6/9/97