Tax arbitrage of sorts?

I don't have the citation handy, but the IRS was clear, they've ruled that a wash sale can occur even when the purchase is in the IRA.

AFAIK the IRS wash sale rules are about securities, not futures which are Section 1256 contracts.

"news" wrote in news:M5Gqu.658556$ snipped-for-privacy@fx07.iad:

That's an interesting point - section 1091 only disallows the deduction on stock and securities. In at least one case the tax court held that stock options are not "securites." If that's the case, then other kinds of futures contracts should not be securites, either. See GANTNER v. COMMISSIONER OF INTERNAL REVENUE, 91 T.C.

NEW MEXICO TIMBER CO. v. COMMR. OF INTERNAL REVENUE, 84 T.C. 1290 (1985), specifically holds that futures contracts are not "stock or securities. The court said,

"Thus, commodity futures contracts are not stock or securities. Rev. Rul. 71-568, 1971-2 C.B. 312, so holds. See also Rev. Rul.

After the 8th Circuit affirmed the Tax Court in Gantner, Congress amended section 1091 by adding: "For purposes of this section, the term 'stock or securities' shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities."

None of this really matters relative to the post as there could not be a wash sale because the two investments are not substantially the same. S&P mini futures vs Nasdaq 100 mini futures.

The OP also wrote: "So, effectively, I have moved, roughly, $10,000 from a taxable account into an IRA, right?"

That's not really true, is it? He has a $10K gain in the IRA because he made trades there that increased its value. The $10K loss in the taxable account is just a coincidence -- he'd have the same gain in the IRA if he'd never done anything in the taxable account, or if the taxable account also had a gain. Nothing was transferred.

My point was that "stock or securities" is treated by the tax court as a specific rather than a general term. Even after the change in the law, this didn't change for all futures trades, just stock options. So other futures contract, even if essentially identical, would apparently not qualify for a wash sale since they are not specifically referred to in the statute.

I think the point he was trying to make was that by going long in his taxable account and going short in his IRA on futures that were similar but not substantially identical, he maintained his portfolio value but generated tax losses that he can take to offset ordinary income over the next few years.

I've got a buddy who told me that he moved $1,500 from his "taxable" account to his IRA account by writing a check for it and depositing the check in the IRA. He'll get a $1,500 deduction on his tax return for the IRA contribution, and he'll pay ordinary income tax when he takes the money out of his IRA sometime in the future. Spectacular result, eh?

This is not an answer, but a new thread/question. If you have a question, you might post it with a new title.

I don't have the citation handy, but the IRS was clear, they've ruled that a wash sale can occur even when the purchase is in the IRA.

============== Agreed that the IRS has issued such a ruling, but I believe that ruling is faulty. It is based on old court cases (1930s era) regarding wash sales between corporations ultimately under control of the same entity (a natural person). The problem is that the ruling does not recognize that in historical situation, both entities recognized tax effects, while with an IRA and its controlling individual, transactions in one of the entities is not recognized for tax purposes. This is a ruling that should be challenged as wrong. Furthermore, the statute governing wash sales requires symmetric treatment (i.e. the disallowed loss creates basis in the [re]purchased stock). The ruling doesn't explain why a loss sale inside an IRA (which could be recognized when the IRA is fully depleted if there was an unrecovered non-deducted basis in the IRA) doesn't add to the basis of a repurchase outside the IRA it washes against.

On Tuesday, December 17, 2013 5:00:48 PM UTC-8, D. Stussy wrote: | "JoeTaxpayer" wrote | || I don't have the citation handy, but the IRS was clear, they've ruled || that a wash sale can occur even when the purchase is in the IRA. | | ==============| | Agreed that the IRS has issued such a ruling, but I believe that ruling is | faulty.... | The ruling doesn't explain why a loss sale inside an IRA (which | could be recognized when the IRA is fully depleted if there was an | unrecovered non-deducted basis in the IRA) doesn't add to the basis of a | repurchase outside the IRA it washes against.

Perhaps if someone were to try using the loss in the IRA to increase the non-IRA basis and thus generate a higher basis (leading to lower taxes), the IRS would reconsider their position?

(Not that I would volunteer to try that).