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
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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

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.
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

Reply to
ed

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