Question on Wash Sale

On 1/3/12 3:02 PM, D. Stussy wrote: [SNIP}

[SNIP}

My point is merely that 1091 does not come into play, because in your scenario, it starts with a sale inside an IRA presumably of an asset that cost more than the selling proceeds. 1091 comes into play when you have a realized loss that you are trying to recognize. As this sale happened in a tax-exempt account, there is no realized loss that you are trying to recognize. Thus, there can not be a wash sale.

Reply to
Alan
Loading thread data ...

Huh? Are you suggesting that I can look at my IRA holdings, sell whatever stocks are losers (I'm no stock picker, so there are a great selection), buy them in my cash account within 30 days thus invoking a wash sale, and raising my cost basis in the cash account? Then when I sell, it's a loss in the cash account.

I think that (a) the above falls under the "too good to be true" rule, (b) if it were true, someone would have written about it by now, and (c) it would negate what I always believed as fact, that a loss in an IRA doesn't create the potential for a wash sale invocation.

/Joe

Reply to
JoeTaxpayer

Actually, I am saying that the RR clearly implies such by allowing the converse situation to wash a loss sale outside of an IRA with a repurchase inside one.

...And it is this very absurdity that shows why RR 2008-5 must be wrong.

Reply to
D. Stussy

And as ALL transactions inside an IRA are not recognized, how can a purchase be justification for triggering a wash sale?

That's my point. The RR is incorrect.

Reply to
D. Stussy

Depends on what you mean by wrong. If you mean, in an ideal world you would be correct, I would agree with you.

But if you mean something that the courts would necessarily determine when it comes to it, I'm not so certain.

I remember a series of cases several years ago, about whether demand loans given without interest had any measurable value such that they would constitute a taxable gift. The IRS wanted to impose gift taxes, but the courts (up to but not including the Supreme Court) generally disagreed with them.

Personally I thought the courts were correct. Based on the way gift tax had always been determined, a loan that could be demanded back at any time really had no market value under traditional rules, even if no interest were taken.

It seemed to me any income generated by the donee could be taxed to the donor under the grantor trust rules. And that would have likely netted more tax than imposing gift tax would have. But the IRS apparently never thought of that. Instead they got the Supreme Court to determine that not imposing gift tax was just unreasonable (which it may have been) irrespective of what the law said.

___ Stu

formatting link

Reply to
Stuart Bronstein

The question posed in RR 2008-5) is:

If an individual sells stock or securities for a loss and causes his or her individual retirement account or Roth IRA to purchase substantially identical stock or securities within 30 days before or after the sale, is the loss on the sale of the stock or securities disallowed?

This only addresses a purchase within an IRA creating a wash sale - "causes his or her individual retirement account or Roth IRA to purchase" - that's it. It was to specifically address the one issue of whether the purchase in the retirement account purchase could create a wash sale. Before this ruling, there was some ambiguity. Now, not so much.

I respect your nice try, it would be a fantastic process to add to our bag of tricks, and to somehow gain from any losses in one's IRA along the way, but I suspect if one argued the position you are taking, they'd find another ruling, concluding "no, you can't do that."

Reply to
JoeTaxpayer

The problem may be that you're trying to apply logic. Just because the IRA transaction is considered for triggering the wash sale rule doesn't mean it's also considered for other situations.

The RR merely says that you can't use an IRA as a loophole to get around the wash sale rule. It doesn't automatically generalize.

Reply to
Barry Margolin

However, each day that it was not demanded back is a gift, whose value is one day of interest. (The appropriate interest rate is the overnight rate, rather than any longer-term rate, but I don't believe the IRS cares.)

Seth

Reply to
Seth

Now consider this situation:

Taxpayer sells stock at a loss (cost: $2,000, sale: $1,000).

He buys it back inside his IRA. Then he reads this discussion (or RR

2008-5), and realizes he has a problem.

He then sells the stock in his IRA (assume break-even (buy and sale both at $1,000)), and buys it back in his taxable account (still $1,000).

All of these transactions take place in the same week.

What is his basis?

What if the IRA transactions weren't break-even?

Seth

Reply to
Seth

And what that means is that an IRA is no longer a nonrecognized entity with regard to transactions occuring within it -- which has been the historical view.

Therefore, if what happens inside (i.e. not contributions/withdrawls) can affect the taxpayer, why shouldn't that flow both ways?

In my opinion (and IRS training) before this RR, there was no ambiguity. A purchase inside an IRA did NOT wash a taxpayer's loss sale. They were considered separate, unrelated entities -- the individual and his IRA were not the same taxpayer and therefore 1091(a) didn't apply. The IRA custodian is the trustee, not the taxpayer (who is merely a beneficiary), and therefore there is no relationship per IRC 267(b), no blood relation per 267(c), no passthrough per 267(e), and no controlled group per 267(f) (which applies only to corporations). The case law cited in the RR being pre '39-code doesn't hold true in today's '86-code.

Reply to
D. Stussy

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.