Form 6781- Can you enter negative numbers in Part III

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CMS_VA_CPA 15 years ago

Would appreciate some help from 1040 professional software users other than Intuit ProSeries users.

On your your 1040 software, can you enter Form 6781 Part III Line 14 (c) as -15000 and (d) as -20000 in order to get a 5000 calculated gain in column (e)?

I use ProSeries Pro and it gives errors if either column (c) or (d) is negative. I used UltraTax by Creative Solutions last year which allows negative numbers. Negative numbers would seem appropriate in certain situations.

Situation- client SOLD a call for $20,000 (therefore -20000 in column (d) since client received $20,000). At 12/31 the value of the call was $15,000 (therefore -15000 in column (c) since client would have to pay 15,000 to close position). Position still open on 12/31. Therefore a $5,000 unrealized gain. Yes, I can swap the numbers between columns in order to get the 5,000 gain while using only positive numbers, but this does not correctly state cost or 12/31 value.

I am currently waiting on a call from Level 2 ProSeries support. Just trying to get more information to discuss with them.

ProSeries (software and Level 1 support) says the numbers cannot be negative. UltraTax says they can be negative. I think they should be negative. What does your software say? What do you think? Am I right or wrong?

Thanks.

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removeps-groups 15 years ago

The user of negative numbers seems fine to me here. What difference does it make as you long as you get 5k in the end?

But some questions:

Did the client sell the call short? If they sold a position they owned, it wouldn't make sense to list it in part III.

What happens with the unrealized gain. Is it transferred to form 1040 or something. I didn't see anything in the form about this.

Why would one ever use part III of this form? I never use it for myself. Am I supposed to?

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CMS_VA_CPA 15 years ago

Thank you for trying this for me. What software are you using?

Re your questions- Yes, the TP sold an uncovered call. Since it was still an open position on

12/31, it is listed in Part III. Any gains listed in Part III are taxable in the current year as though the position was closed on 12/31. The gains (but not losses) go up to Part I to be taxed with the completed transactions during the year.

As far as not using negative numbers, I assume you are referring to my comment that I could reverse the columns and use positive numbers to get the

5000 gain. The reason not to do this is that the value shown for 12/31 would then be incorrect. If a reviewer, auditor, IRS, or another CPA reviewed the return, the 12/31 value would be wrong with no explanation. To me this would be sloppy work.

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removeps-groups 15 years ago

Just my brain right now. I had currency trades once and used form

6781 part I to enter the gains/losses. Not sure if that's the right form, but I had a net loss, so using Schedule D directly would have been better as all the loss would have been short term. In a previous year I used Schedule D, short term part, to enter my losses. I have no idea what part II and part III are used for. Part III is strange because it doesn't like the total matters.

I'm not answering your question, just trying to learn.

Did he sell, sell short, write, or write short the call? If he sold, then he no longer owns the call and I don't see why you have to list the position in part III, as he no longer owns the position. If I'm not mistaken, the use of part III is only required if you're a professional trader.

Maybe you could respond to their inquiry, then you'll know for sure what to do next year.

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Form 6781- Can you enter negative numbers in Part III

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