Suppose I own shares of the same stock in different accounts at different brokerages. Both accounts are taxable; neither is an IRA.
When I sell some shares in one account, for my convenience, the broker sends me a statement that shows the basis of the stock sold, based on FIFO, presumably for me to use on Sched D.
But is that the way the IRS would look at it? Or do I need to consider FIFO across the multiple accounts?
For example, if I sold 100 shares in account #A, and 30 shares in account #B are the oldest, followed by 70 shares in account #A, do I need to combine the basis of the 30 account #B shares with the basis of the 70 account #A shares?
If the answer is "no", would the answer be any different if both accounts were at the same brokerage? (Again, neither is an IRA.)
Finally, if the shares are in mutual funds, and the mutual fund reports an average basis for the sale, can I use that number? That is, does the MF combine the shares held by the same person across multiple accounts; or does the MF keep the accounting for the two accounts separate?
Of course not! I never said or implied that Broker 1sold shares held by Broker 2. That would be absurd.
Instead, I asked how the IRS would apply the FIFO rule to the sale of shares held in multiple accounts.
For example, wash sales rules apply to shares held in multiple accounts. That is, a purchase of stock in one account can "wash" the loss due to a sale of the same stock held in another account.
That gave rise to my question about FIFO. IR Reg 1.1012-1(c) states (emphasis added): "If shares of stock in a corporation are sold or transferred __by_a_taxpayer__ who purchased or acquired lots of stock on different dates or at different prices, and the lot from which the stock was sold or transferred cannot be adequately identified, the stock sold or transferred shall be charged against the earliest of such lots purchased or acquired in order to determine the cost or other basis of such stock".
That is the FIFO rule.
Note that it says "by a taxpayer". It does not say, for example, "in an account" -- at least, nowhere that I can find. (Compare with the regulation for average basis below.)
I, too, would rationalize that since the purpose of the FIFO rule is to provide some degree of identification where "adequate" identification cannot be determined to the IRS's satisfaction, then it makes sense (to me) that the account itself provides at least some degree of identification, which is refined by FIFO. Ergo, the application of FIFO should be limited to each account.
That was always my expectation.
But if my rationalizations defined IRS rules, tax law would be a lot simpler to apply than it is . Knowledgable people in this forum have repeatedly pointed out that tax law is not always "rational" -- at least not in the way that my mind works.
Moveover, I have a vague 30-year-old recollection that the CCH tax guide (for tax professionals) suggested that stock records be kept based on all holdings of a taxpayer, explicitly not by account -- at least for all taxable accounts. I am betting that my "recollection" is incorrect -- or no longer applicable. But I have a nagging feeling that what I read was a surprise; and keeping records per account would not be a surprise to me.
So I still have an open question about FIFO.
Mutual funds must do what the IRS (or SEC) requires, whether or not it is the easier way to do it.
Having finally located Reg 1.1012-1(e), I see that it answers this part of my question dispositively. It states (emphasis added):
"(3) Double-category method--(i) In general. In determining average basis using the double category method, all shares in _an_account__ at the time of each sale or transfer shall be divided into two categories."
"(4) Single-category method--(i) In general. In determining average basis using the single-category method, the cost or other basis of all shares in __an_account__ at the time of each sale or transfer [...] shall be used in making the computation."
Note that it clearly states that average basis is computed for shares held "in an account", not "by the taxpayer".
That's because the wash sale rule is trying to prevent you from turning paper losses into actual losses with no risk. For this purpose, it doesn't matter which accounts you use.
But it says "cannot be adequately identified". When you choose which account to sell from, you're identifying them to be one of the lots in that account, but no more specific. Then "such lots" in the following sentence refers to the lots in that account, so you're selling the earliest of those lots.
How could it possibly be otherwise? The MF doesn't know about other accounts held by the taxpayer.
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