Uncovered Short sale = IRS notice

I got a notice from the IRS for 2005 for discrepancies on my Schedule D. I looked at it and it turns out I had sold short shares that were not covered until 2006 and therefore did not need to be reported on my D (but were reported by my brokerage on the 1099).
My question is is it a requirement to include a statement explaining this or is it just smart to avoid getting the letter (and hassle) later? I looked in Pub 550 and didn't see anything stating this was a requirement (or even suggesting to do it).
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Reply to
Mike C

I viewed 550 as well. You are right, it's lacking. Given that a broker will report a short sale the same as a sale, that's what the IRS tries to reconcile. Purchases, i.e. cost, isn't really tracked by the broker (IRS wants to change this) but sales are. So a short sale that remains open through the end of the year needs to be reconciled, and noted on the return.
JOE
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Reply to
joetaxpayer

Pub 550 used to be more exacting, and more helpful
The best I could find this year is a Pub 550 statement right in the middle of page 67 that says Emily reconciles the Schedule D Sales columns and makes sure they are not less than the reported amounts of the 1099Bs.
Then you can use your memory of what the Pub or the Schedule D instructions used to say, and attach a statement when the 1099Bs are more than the Sales Price columns.
But when you have short positions remaining open at year end, just say so right on the schedule D.
I do this by entering "Short position remaining open 12/31/06" on the line below the report of the short sale.
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Reply to
Arthur Kamlet

To make your total coorespond with the total of your 1099-Bs you must report all sales. If you didn't close them that year, report the purchase information (price, purchase date and profit) as "open short".
ed
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Reply to
ed

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