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Posted by Robert A. Green on 03-10-12 10:03 PM:

Botched 1099-B cost-basis reporting: The List

Big Concerns with Botched 1099-Bs and Discrepancies on Form 8949
http://www.greencompany.com/blog/index.php?postid=139

As a leading CPA firm for preparing income tax returns for active online traders, we are spotting significant discrepancies between 2011 Form 1099-Bs provided by securities brokers – which include cost-basis information for the first time – and trade accounting software results. We have noticed scary differences on almost every file we have reviewed. It’s hard to pin point the main area of concern — so far, our CPAs are reporting big differences all across the map and it varies greatly by broker, too.

We’re putting tax filings on hold and filing extensions instead to have time to investigate these discrepancies. We expect brokers to issue wide-scale corrected 1099-Bs, and we wouldn’t be surprised to see corrections later this year. Hopefully these problems will be resolved in time to file tax returns by the extended due dates (Oct. 15 for individuals and partnerships; Sept. 15 for S-Corps).

ON THIS THREAD, please report the Form 8949 problems that you are experiencing in trying to reconcile with your broker's 1099-Bs.

We want this thread to be a Master List or FAQ for problems and solutions on this topic. We hope to pressure brokers to fess up to this mess and to clean it up with corrected 1099-Bs. Otherwise, tens of thousands of traders may get tax notices and related problems. I explain more in my above blog. Thanks, Robert A. Green, CPA

Posted by gkishot on 03-10-12 11:09 PM:

Re: Botched 1099-B cost-basis reporting: The List

Quote from Robert A. Green:

Big Concerns with Botched 1099-Bs and Discrepancies on Form 8949
http://www.greencompany.com/blog/index.php?postid=139

As a leading CPA firm for preparing income tax returns for active online traders, we are spotting significant discrepancies between 2011 Form 1099-Bs provided by securities brokers – which include cost-basis information for the first time – and trade accounting software results. We have noticed scary differences on almost every file we have reviewed. It’s hard to pin point the main area of concern — so far, our CPAs are reporting big differences all across the map and it varies greatly by broker, too.

We’re putting tax filings on hold and filing extensions instead to have time to investigate these discrepancies. We expect brokers to issue wide-scale corrected 1099-Bs, and we wouldn’t be surprised to see corrections later this year. Hopefully these problems will be resolved in time to file tax returns by the extended due dates (Oct. 15 for individuals and partnerships; Sept. 15 for S-Corps).

ON THIS THREAD, please report the Form 8949 problems that you are experiencing in trying to reconcile with your broker's 1099-Bs.

We want this thread to be a Master List or FAQ for problems and solutions on this topic. We hope to pressure brokers to fess up to this mess and to clean it up with corrected 1099-Bs. Otherwise, tens of thousands of traders may get tax notices and related problems. I explain more in my above blog. Thanks, Robert A. Green, CPA

IB has reported cost-basis information to IRS only for stocks,not options,correct?

Posted by trefoil on 03-10-12 11:38 PM:

Ditto TD. That seems to be the source for this.

Posted by jokepie on 03-10-12 11:41 PM:

Yes .. IB did something... i received IRS bill today... for 27k...
Stupid morons... cant figure out anything right.

__________________
Guru,
-----------------------
"Happiness is not at the END of the road, its ALL the way along it"
------------------------------
I would not stop until I can say the following : " I can't help making money"

Posted by MR.NBBO on 03-10-12 11:52 PM:

Interactive Brokers:
Not extinguishing a wash sale after 30+days have passed, in many if not all cases.

Best/cleanest examples are 1 day in-out trades that may have produced an initial loss, but at end of day, there's a gain, and then NO trades for 30+ days. So in any case, there should be no dissallowed loss on 2 different fronts:Net gain, and 30+day passes without trading again.

Posted by heywally on 03-11-12 12:03 AM:

Re: Botched 1099-B cost-basis reporting: The List

Quote from Robert A. Green:

Big Concerns with Botched 1099-Bs and Discrepancies on Form 8949
http://www.greencompany.com/blog/index.php?postid=139

...

Thanks for your posts Robert.

So, are these 'error' tax forms something that IB has already sent to the IRS?

If so, does anyone know anything about follow-ups from brokers to the IRS, to fix the problem?

__________________
Buy weakness slowly, scale out into strength.

Posted by jokepie on 03-11-12 12:04 AM:

Mr. Robert,

Since i received the messy notice already .. what do i do next.

Thanks

Posted by fusionz on 03-11-12 01:22 AM:

Quote from jokepie:

Yes .. IB did something... i received IRS bill today... for 27k...
Stupid morons... cant figure out anything right.

What year was this(obviously can't be this year yet, so new cost-basis reporting doesn't apply)?

Posted by jokepie on 03-11-12 01:53 AM:

Quote from fusionz:

What year was this(obviously can't be this year yet, so new cost-basis reporting doesn't apply)?

This for 2010 tax yr. I saw the list of transactions on the notice - They only have sales date and no purchase dates... Doesn't make any sense - it seems like they reported half of the transactions and these are mostly intra-day trades.

Posted by Robert A. Green on 03-11-12 04:07 AM:

Re: Re: Botched 1099-B cost-basis reporting: The List

Quote from gkishot:

IB has reported cost-basis information to IRS only for stocks,not options,correct?

Brokers are supposed to report 2011 stock purchases, and not options which are reportable in 2013. My partner Darren Neuschwander CPA will post on how different brokers are reporting, and problems that we are noticing.

Posted by Robert A. Green on 03-11-12 04:10 AM:

Quote from jokepie:

Yes .. IB did something... i received IRS bill today... for 27k...
Stupid morons... cant figure out anything right.

Did you receive an IRS notice for tax year 2011? Wow, that's fast if you did. Send me the notice and I'll look into it.

Saw your update above. Is it a 2010 tax notice? Makes sense, as it's too early to hear from the IRS for 2011 tax returns yet.

Posted by Robert A. Green on 03-11-12 04:20 AM:

Quote from MR.NBBO:

Interactive Brokers:
Not extinguishing a wash sale after 30+days have passed, in many if not all cases.

Best/cleanest examples are 1 day in-out trades that may have produced an initial loss, but at end of day, there's a gain, and then NO trades for 30+ days. So in any case, there should be no dissallowed loss on 2 different fronts:Net gain, and 30+day passes without trading again.

We noticed this exact problem on wash sales with IB, for a few clients, too. Wash sales are deferred until you absorb them with offsetting gains on substantially identical positions, but IB may not be considering subsequent gains correctly. So, taxpayers may be overstating their capital gains by deferring losses they don't have to defer, thereby overpaying their taxes.

Conversely, traders may file correctly, and then receive a nasty tax notice saying they owe the IRS a big bill due to wash sales, which happen to be incorrect, but the IRS believes IB's 1099-B, first. It's emotionally upsetting and potentially costly to fix these brokerage errors with the IRS.

Posted by Robert A. Green on 03-11-12 04:28 AM:

Re: Re: Botched 1099-B cost-basis reporting: The List

Quote from heywally:

Thanks for your posts Robert.

So, are these 'error' tax forms something that IB has already sent to the IRS?

If so, does anyone know anything about follow-ups from brokers to the IRS, to fix the problem?

Yes, when brokers issue 1099-Bs, they send them to you and the IRS. This gets to the heart of the problem this year. Brokers are reporting income and loss incorrectly and the IRS is going to believe the broker and send you a tax bill for any differences, when it's in the IRS's favor. You need to demand and receive corrected 1099-Bs, to get the IRS off your back. Brokers are ignoring traders and not cooperating. We need collective pressure to force brokers to fess up and clean up their mess.

Posted by the1 on 03-11-12 06:02 AM:

I've noticed the discrepancies are more isolated to the uncovered (basis not reported to the IRS) transactions rather than the covered (basis reported), even though the basis for the uncovered are provided to the trader/investor. What we're doing in our practice is reporting the covered transactions as provided by the broker, unless there are large discrepancies which hasn't been the case for the most part, and using the traders records for the uncovered transactions when discrepancies exist b/c the basis on this transaction type isn't reported to the IRS. I think it's going to take a while for the brokers to work the bugs/garbage out of their systems. Basis reporting should become more accurate as time goes by.

Posted by heywally on 03-11-12 03:01 PM:

Re: Re: Re: Botched 1099-B cost-basis reporting: The List

Quote from Robert A. Green:

Yes, when brokers issue 1099-Bs, they send them to you and the IRS. This gets to the heart of the problem this year. Brokers are reporting income and loss incorrectly and the IRS is going to believe the broker and send you a tax bill for any differences, when it's in the IRS's favor. You need to demand and receive corrected 1099-Bs, to get the IRS off your back. Brokers are ignoring traders and not cooperating. We need collective pressure to force brokers to fess up and clean up their mess.

Thanks - I think that this mess completes my transition to only doing active trading in the IRA accounts, with the caveat that I need to not trade the same securities/ETF's in the IRA accounts as in the cash ones, because of wash sale considerations between the two.

In the big picture, though I know it is easy for the IRA to justify what they are doing here, it effectively becomes another complicating tax factor that helps to justify their existence.

It's too bad that their isn't the political will/competence to simplify the tax code and then provide IRA personnel with a quick 50% headcount reduction.

__________________
Buy weakness slowly, scale out into strength.

Posted by Option_Attack on 03-11-12 04:43 PM:

Definitely IB:

Quote from Option_Attack:

[B]I can't figure out how they got the wash sale numbers either. Looks like on mine whenever a stock was traded more than once during the year, and at least one of the trades was a loss, they added some bogus numbers up.

I haven't looked at all of them (hundreds of disallowed) but a quick scan found a trade in JANUARY on a stock for a small gain (only about $25), then another in AUGUST (the Summer "Crash"!) for about a $400 loss. Somehow this gives a Disallowed Wash Sale of $111??? And those are the only trades of that stock during the year.
[B]

Posted by nkhoi on 03-11-12 05:39 PM:

Quote from Robert A. Green:

... It's emotionally upsetting ...

upseting? it feels more like a homicidal rage.

Posted by et_user on 03-11-12 06:16 PM:

IB includes SPY and MDY as covered securities though they are ETFs. So, in tradelog software, I changed the type to stocks for these ETFs and able to match covered securities gross proceeds with IB. Also, EVEP is under uncovered securities in my 1099-B thought it is not ETF.

Lesson, look at 1099-B and get a list of all symbols for both covered and uncovered securities and then match with tax software to get the gross sales proceeds correct for each category. Do not assume all stocks are covered securities and also do not assume all ETFs are uncovered securities.

Thanks Mr. Green for your contributions.

Posted by jackpearson on 03-12-12 01:01 AM:

If the IRS is only going to go by the 1099-B's, then doesn't calculating wash sales across multiple brokers (for those that use multiple brokers) a stupid thing to do as the IRS will go by the 1099-B's exclusively & you'll get audited for filing trade info that doesn't match the 1099-B's????

Why not just (if you use multiple brokers or just one) put on your tax form exactly what's on the 1099-B to avoid any hassle?

Posted by Robert A. Green on 03-12-12 03:57 AM:

Quote from jackpearson:

If the IRS is only going to go by the 1099-B's, then doesn't calculating wash sales across multiple brokers (for those that use multiple brokers) a stupid thing to do as the IRS will go by the 1099-B's exclusively & you'll get audited for filing trade info that doesn't match the 1099-B's????

Why not just (if you use multiple brokers or just one) put on your tax form exactly what's on the 1099-B to avoid any hassle?

Proper trade-accounting software calculates wash sales across multiple brokerage accounts and taxpayers should do this procedure to be compliant. Wash sale rules are poorly drafted and now the IRS is going to tie themselves up in a knot having to tackle them with botched 1099-Bs and Form 8949 discrepancies. Hopefully, they will revise those rules afterwards.

Posted by nkhoi on 03-12-12 01:43 PM:

Quote from Robert A. Green:

Proper trade-accounting software calculates wash sales across multiple brokerage accounts and taxpayers should do this procedure to be compliant. Wash sale rules are poorly drafted and now the IRS is going to tie themselves up in a knot having to tackle them with botched 1099-Bs and Form 8949 discrepancies. Hopefully, they will revise those rules afterwards.

poorly drafted or not most traders will show losses anyway thus there is no incentive to spend time on it.

Posted by musicman on 03-12-12 04:00 PM:

Posted this in another forum

This was posted by me in another forum.

I should note that the wash sales IB reported were far in excess of what they should have been however my actual calculated gain for the year appeared to be correct. Like the woman in the example with the 450 K wash loss , mine was crazy as well. IB calculated a 54 K wash loss on my QQQ trades – this is impossible because my total loss for 2011 trading the QQQ was only about 2 K most of this was made up of small losses. I keep a very small amount in my IB account as well – only about 30 K which is enough for the type of trading I do. Someone at IB did look into this but said that IB calculated this correctly. Something about calculating wash sales on intraday trading lot by lot. Bottom line I got the proceeds and costs basis on my schedule D to tie back to the 8949 from IB with what looked like the correct gain for the year after taking wash sales into consideration. I think not having these numbers tie would trigger a notice more than some crazy wash sale numbers. My concern will be 2012 when these wash sales go away. I will not trade the QQQ for the month of March , I have traded it for January and February. I will also not trade the QQQ in December is I have any loss going into that month from prior trades. My wash sales should go away but will IB now show a taxable loss of 54 K when all is said and done !!! ??
One other note – because all my QQQ trades were shorts the wash sale adjustments were made to my proceeds not my cost basis. Both Ib and Schwab did this.

Posted by Beta4Me on 03-12-12 07:30 PM:

IB Specific Identification - Not

Well, I may be cooked. I've done 5000 trades a year through IB for the last 5 years. They never facilitated specific identification in any way. Instead they always said "you can track that", which I did. (No provision to mark sales to purchases before clearing) So I have matched buys to sells in Excel, getting some long term gains while avoiding wash sales like the plague (when selling at a loss I always totally liquidate the position and stay clear for 31 days) Now the new 1099 with basis hits, but it's for FIFO that they calculated. I'm on a different track - back for all the years. What a mess! Not sure where to start.

Posted by listedguru on 03-12-12 09:24 PM:

Just got my 1099B from Penson. Not sure what to make of it. Anyway I have a few questions:

It lists a ton of non covered trades and at the end of those it just lists a total of those non covered sales (but no cost basis). Why is that?

For all the other trades it lists my 2011 total proceeds and my cost basis pertaining to those trades.

How the heck do I make this match my own numbers?

-Guru

Posted by Jreality on 03-12-12 11:47 PM:

I just got a Penson 1099-B, and shares bought in 2011 that were really REPLACEMENT SHARES for shares that were originally bought in 2010 (but which had been sold at a loss in 2011) were treated as there were NOT replacement shares. They were treated as brand-new purchases, even though bought back less than 30 days after the previous sale.

In other words, if I bought a security in 2011, and it was replacement shares for a sale that was a loss on a security that was purchased in 2010, then that wash sale was not added to the cost basis of the replacement shares, even though the wash sale itself occurred in 2011. The replacement shares were treated as brand new shares, and reported as covered securities without the necessary adjustments.

In other words, for covered securities, Penson ONLY accounted for wash-sales if all the shares were originally purchased in 2011 free and clear of any previous wash-sales.

How do I handle this? Should they be correcting the 1099 for me?

ADD: Now that I think about it, this is alarming, because, on the 1099-B it makes it look like I now have more gains than I should. Can I demand Penson correct the 1099?

Posted by Robert A. Green on 03-13-12 12:16 AM:

Quote from Jreality:

I just got a Penson 1099-B, and shares bought in 2011 that were really REPLACEMENT SHARES for shares that were originally bought in 2010 (but which had been sold at a loss in 2011) were treated as there were NOT replacement shares. They were treated as brand-new purchases, even though bought back less than 30 days after the previous sale.

..........

How do I handle this? Should they be correcting the 1099 for me?

ADD: Now that I think about it, this is alarming, because, on the 1099-B it makes it look like I now have more gains than I should. Can I demand Penson correct the 1099?

1099-Bs are dropping like bombs on taxpayers now. Many traders are flooding their broker's support lines and the brokers are not admitting their errors. Yes, formally demand a 1099-B correction, but you probably won't get one.

Use TradeLog or other software and be sure of your trading gains and losses. Figure the brokers are very wrong and that explains reconciliation adjustments on Form 8949.

We, and the AICPA will try to get the IRS to back track on Form 8949 since its an incredible mess with all brokers applying the new rules differently. The only commonality is very botched handling.

File an extension based on TradeLog and stay tuned for developments. Don't drive yourself crazy with this. It's reconciling with lunacy. Wait for brokers and the IRS to clean up this mess first. Plan to file your returns in late summer or early fall. Try to file earlier only if you want your a big refund.

Posted by Jreality on 03-13-12 02:36 AM:

I'll definitely be filing for an extension. By the way, according to my calculations, the Penson error, in which they failed to adjust my cost basis as the result of wash sales, makes it appear that my capital gains for the year are around $1,830 greater than they should be.

Posted by jokepie on 03-13-12 07:33 PM:

I just downloaded and user trader log - downloaded everything using broker connect. Works like a charm and prints tax forms for you as well. I recommend it.
Hope fully this will clear IRS notice.

Posted by Robert A. Green on 03-13-12 09:37 PM:

Quote from jokepie:

I just downloaded and user trader log - downloaded everything using broker connect. Works like a charm and prints tax forms for you as well. I recommend it.
Hope fully this will clear IRS notice.

Good, TradeLog is the answer. It will show the correct trading gain and loss with wash sales, too. But, it will also show the discrepancies with the 1099-B and if they are large, you want to trim them down with 1099 corrections before filing. You don't want the IRS looking into large discrepancies on your Form 8949, between your trade accounting (the correct one) and very botched 1099-Bs. The IRS tends to believe brokers and they should not this year.

Posted by heywally on 03-13-12 09:42 PM:

GainsKeeper might be a good way to go also, have had good luck with them in the past but haven't used recently. TDAmeritrade provides complementary access to GK.

__________________
Buy weakness slowly, scale out into strength.

Posted by Robert A. Green on 03-14-12 08:34 PM:

Beware Botched 1099-Bs, Form 8949 At Tax Time
http://www.forbes.com/sites/greatsp...49-at-tax-time/

Besides my Forbes blog above and interview in WSJ this past Sat, my partner Darren Neuschwander, CPA and I had a long interview today with Theresa Carey of Barron's. Ms. Carey writes the popular Electronic Investor column, and she just had the cover story this past week with her Annual Online Broker Review and Ratings.

Our firm and some leading accounting industry groups want the IRS to back down on matching cost-basis reporting on the new beefed-up 1099s. New IRS Form 8949s are turning out to be a huge mess with large discrepancies in trying to reconcile correct trade accounting with botched 1099-B reporting.

Mr. Neuschwander, CPA points out that it's like the prior controversy with the IRS over new 1099-K rules for reporting credit-card transactions. Due to blow back from the credit card and retailing industries, the IRS back tracked and said they would not match the 1099-Ks issued to tax returns. This will prevent an avalanche of inappropriate tax notices, alleging errors where none exist. That would otherwise be very disruptive to taxpayers. We want the same industry and media blow back, and back tracking from the IRS over their new 1099-Bs and Form 8949.

It’s unfair to blame this mess on the brokers alone. The IRS was very late in communicating the new rules and they never even told the brokers about the details of Form 8949, with the different parts for covered versus non-covered, and Parts A, B and C. The IRS did not require standardized reporting and they should. So, traders with different brokerage accounts are seeing very different applications, and that further confuses the issues.

There are two types of problems. Wash sales are very botched and brokers should have gotten that much better. Even when wash sales are reported properly by a broker – which is not the case from what we see so far - it’s not 100% correct, because wash sale analysis must be done across all your brokerage accounts, including IRAs. We are concerned that many unsuspecting taxpayers may over pay their taxes based on broker-reported wash sales that are not correct.

The second problem is botched 1099-Bs and discrepancies on Form 8949. If the IRS turns off the matching program, then I am less concerned with that problem. We need the brokerage industry and media’s help in getting this relief from the IRS. If we blame this all on brokers, they may go into their shell, and not help us as taxpayers and tax preparers. Our goal is to turn off the IRS computers on this matching, and to prevent the IRS from sending out TP-2000 notices to millions of taxpayers over 1099-B and Form 8949 matching errors.

For sure, plan to file valid extensions, and let the dust settle on this huge mess, first. You don’t want a refund that you later have to repay the IRS with interest and taxes, after a broker corrects a Form 1099-B later this year. You also don’t want to pay taxes now that you don’t owe. Plus, you don’t want to dance this crazy dance on reconciling with botched 1099-Bs, when we expect brokers to fess up and fix this mess later on, too.

Posted by Jreality on 03-16-12 06:59 PM:

I notice Pub-550 states that if a short position is held under 45 days, and the short-seller had to make a payment in lieu of a dividend, then the short-seller must increase the basis of the stock used to close the short-sale (instead of being able to deduct the payment as an investment expense)

I wonder how many brokers are actually correctly handling the above situation?

Posted by Option_Attack on 03-16-12 07:19 PM:

Quote from Robert A. Green:

Beware Botched 1099-Bs, Form 8949 At Tax Time
http://www.forbes.com/sites/greatsp...49-at-tax-time/

Besides my Forbes blog above and interview in WSJ this past Sat, my partner Darren Neuschwander, CPA and I had a long interview today with Theresa Carey of Barron's. Ms. Carey writes the popular Electronic Investor column, and she just had the cover story this past week with her Annual Online Broker Review and Ratings.
.

Bob, thanks for all the info over the years. I wish Baron would start, and let you sponsor, a "Trader's Tax Forum" here at ET, without making you pay a sponsor fee. It is, unfortunately, an important subject and generally a huge pain for traders.

Maybe if all links to your blog or services were removed, Baron would go for it? Sort of as a public service?

Regards and good trading to all.

Posted by gkishot on 03-17-12 09:49 AM:

I've received new 1099-B from Penson this year that has a large number in the 'Wash Sale Loss Disallowed' column. Can someone please tell me when I am actually allowed to take this loss?

Posted by Baywolf on 03-17-12 09:46 PM:

Quote from et_user:

IB includes SPY and MDY as covered securities though they are ETFs. So, in tradelog software, I changed the type to stocks for these ETFs and able to match covered securities gross proceeds with IB. Also, EVEP is under uncovered securities in my 1099-B thought it is not ETF.

Lesson, look at 1099-B and get a list of all symbols for both covered and uncovered securities and then match with tax software to get the gross sales proceeds correct for each category. Do not assume all stocks are covered securities and also do not assume all ETFs are uncovered securities.

Thanks Mr. Green for your contributions.

Hi et_user,

I'm using TradeLog and IB and the discrepancy amount roughly equals the amount IB classifies as non-covered in the 1099b form.

How do you classify an entry in tradelog so that it not included in the covered amount?

Posted by Robert A. Green on 03-17-12 10:11 PM:

Webinar Invitation: Join us for "Learn How To Use TradeLog to Deal with Cost-Basis Reporting Problems on 2011 Tax Returs" on March 20, Tuesday @ 1:00pm ET. https://www1.gotomeeting.com/register/521587681
We will thank Elite Trader on the Webinar for spreading the word on these threads, and give a special warm welcome to Elite Trader users.

Learn How To Use TradeLog to Deal with Cost-Basis Reporting Problems on 2011 Tax Returns

Join CPAs Robert Green and Darren Neuschwander, Managing Members of Green NFH, LLC, and Jason Derbyshire of TradeLog.
In this Webinar:
• Derbyshire will give a demonstration of the new version of TradeLog built to deal with Form 8949.
• Green and Neuschwander will discuss how to deal with 1099-B discrepancies.
• Green and Neuschwander will demonstrate how to prepare valid tax return extensions.

The IRS cost-basis reporting rules apply to 2011 and brokers are struggling — in most cases, brokers’ 1099-Bs are wrong on proceeds, cost basis and wash sales. The new rules require reconciliation with 1099-Bs on the controversial new tax form 8949. Taxpayers must now enter trades on Form 8949 instead of Schedule D.

Get a grip on 2011 trade accounting and tax reporting with TradeLog — its calculations are correct when used properly. TradeLog’s Form 8949 will likely show an adjustment for 1099-B reconciliation differences, and in many cases that discrepancy will be significant. If it’s material, traders should investigate the differences and discuss them with their brokers. In most cases, traders should request corrected 1099-Bs. We expect the IRS to match 1099-Bs to tax filings with Form 8949, so be prepared to receive an IRS notice about material differences.

For this reason, we suggest filing for automatic extension, and waiting for corrected 1099-Bs to be issued, hopefully before the extended tax return due date of Oct.15 for individuals, and Sept. 15 for partnerships and S-Corps.

Posted by et_user on 03-17-12 10:29 PM:

Baywolf,

tradelog uses Type/Mult field to define it. STK-1 is covered. ETF-1 is uncovered. For example, SPY, change to STK-1 because though it is ETF, IB has put it under covered securities.

Hope, this helps.

Posted by RichardRimes on 03-17-12 10:59 PM:

Quote from gkishot:

I've received new 1099-B from Penson this year that has a large number in the 'Wash Sale Loss Disallowed' column. Can someone please tell me when I am actually allowed to take this loss?

pub 550 pg 60 http://www.irs.gov/pub/irs-pdf/p550.pdf

if loss is disallowed because of wash sale rules you add the disallowed loss to the cost of the new securities...it gives a number of examples how to do this...go to irs.gov and type in pub 550 for the info

Posted by gkishot on 03-18-12 12:14 AM:

Quote from RichardRimes:

pub 550 pg 60 http://www.irs.gov/pub/irs-pdf/p550.pdf

if loss is disallowed because of wash sale rules you add the disallowed lossAnd to the cost of the new securities...it gives a number of examples how to do this...go to irs.gov and type in pub 550 for the info

Penson reports total disallowed wash sales loss for the year to IRS. To what security should I add total wash sale loss? To all my transactions next year?

Posted by RichardRimes on 03-18-12 12:44 AM:

only if they are disposed of in 2012...THIS is how I understand it.

NOV 1, 2011 you buy(#1) 100 sh of APPL for $300. It tanks you sell @ $200 but within 30 days buy it back(buy #2) @ $150. You hold it until Feb 2012 at which point you sell at $400.

Your loss of $100 per share for 2011 is disallowed under wash sell rules. This $100 is then ADDED to your cost basis of buy #2...so that cost is $250 and not $150. Your gain in 2012 is then the difference between the gain of $400 and the new basis of $250 + of course transaction costs.

If disposition occurs in 2011 then its still the same. The loss is disallowed but the gain is minimized. If you have re-occuring multiple losses all disallowed...not really sure how THAT would work!!! I guess at some point you just have to hold it for more than 30 days to finally realize the loss.

Posted by RichardRimes on 03-18-12 12:49 AM:

Quote from gkishot:

Penson reports total disallowed wash sales loss for the year to IRS. To what security should I add total wash sale loss? To all my transactions next year?

Your saying they just give ONE dollar figure for ALL your wash sales? They LUMP it all together???
makes your life a bit difficult because you then have to go figure it all out. which sales they were and what securities involved. Is there an easier way?? dunno

can't believe that.................. they HAVE to be more specific!

Posted by JackR on 03-18-12 02:11 AM:

If you have a chain of wash sale losses, and never make a profit, you finally realize the loss when you stop trading that issue for more than 30 days. The last purchase, with its carried-forward adjusted basis, determines your final loss.

Just as a neat thing - If you took a loss on an issue on Jan 1,2011, traded the stock during 2011 such that every trade continued the wash sale chain (no gains), and finally sold the issue at a profit in 2012, you'd have a long-term capital gain. Not my rules, but the IRS'. However, if you did this type of trading, I don't think you should be a trader.

Jack

Posted by dv4632 on 03-19-12 07:20 PM:

I noticed 3 cost basis errors on my Schwab 1099, the total of the errors is 7 cents in my favor. So if I used the broker numbers the IRS could come back and say I owe them 7 cents? lol

After looking again I notice these shares were purchased in 2009 and 2010, so the cost basis is not reported to the IRS. It even says so on the 1099 (they have the 'X' code in box 6). So looks like I'm all set on this. I should probably be safe to use my correct numbers (not broker numbers) and send it in...

Posted by gaj on 03-19-12 09:31 PM:

i won't be around when the webinar is conducted; will it be available for download?

Posted by anuragmisra on 03-20-12 02:30 AM:

ETFs shown as uncovered in 1099-B

Hi Robert,

My 1099-B from Interactive Brokers is showing three ETfs that I traded (short term basis) in 2011 ( KOL, XLU, PIN) as uncovered. The problem is TradeLog shows them as Covered and puts them under Part1 (Category A) of Form 8949. I have been trying to work with TradeLog support but after much back & forth have been unable to get a way to move these to Part 1 (Category B). Still trying to get a fix. This is causing a big adjustment line in Part 1 (Category A).

If you or anyone could suggest a way to fix this, it would be greatly appreciated.

Thanks & Regards
Anurag

Posted by anuragmisra on 03-20-12 04:16 AM:

ETFs shown as uncovered in 1099-B

Hi,

My 1099-B from Interactive Brokers is showing three ETfs that I traded (short term basis) in 2011 ( KOL, XLU, PIN) as uncovered. The problem is TradeLog shows them as Covered and puts them under Part1 (Category A) of Form 8949. I have been trying to work with TradeLog support but after much back & forth have been unable to get a way to move these to Part 1 (Category B) to match 1099-B. Still trying to get a fix. This is causing a big adjustment line in Part 1 (Category A).

If anyone could suggest a way to fix this, it would be greatly appreciated.

Thanks & Regards

Posted by Robert A. Green on 03-20-12 05:08 PM:

We will reply to some of your posts soon with specific answers and help.

My new blog should shed further light on the problems in reconciling 1099s to trade accounting on Form 8949.

Mar 20 12 - IRS, why force taxpayers to reconcile securities-broker 1099-Bs to tax returns, when your rules are apples vs. oranges?
http://www.greencompany.com/blog/index.php?postid=141

Contrary to public perception, securities brokers’ cost-basis reporting on 1099-Bs rarely matches taxpayers’ net trading gain or loss generated from their trade accounting program. This is because the IRS gives brokers one set of rules for preparing 1099s and gives taxpayers an entirely different set of rules.

Why the difference? The IRS does not ask securities brokers to report net taxable gain or loss on 1099-Bs, but they require taxpayers to do that on the new Form 8949 for 2011 tax returns.

The apples and oranges in the rules are counterintuitive to taxpayers, causing great confusion and extension filings. Historically, the IRS led taxpayers to believe the idea of 1099s was to confirm a taxpayer’s income or loss and to provide a means for IRS computers to check up on taxpayer compliance. Sometimes, the IRS matches net income — one example is with Section 1256 contracts. And other times it reconciles with proceeds — such as with securities. But the new 2011 rules require brokers to report cost basis on 1099-Bs, too.

Some of the problem is due to phase-in and transition. Securities brokers report 2011 cost basis on stocks only. (A few brokers elected to report 2010 cost basis on 2011 1099-Bs, too, even though it wasn’t required.) In doing so, brokers’ systems left out wash-sale deferral cost basis from 2010. That means out of the gate, 1099-B 2011 wash sale reporting is incorrect. If 1099-Bs botch wash sales, how can cost-basis reporting be correct for 2011? It can’t. This issue may be better in 2012, when brokers report 2011 and 2012 cost basis.

.........Read the full blog at:
http://www.greencompany.com/blog/index.php?postid=141

Posted by Bob111 on 03-20-12 05:52 PM:

IRS, please don’t require taxpayers to reconcile differences
The IRS caused this mess, so it should not force taxpayers to explain the line-by-line differences on Form 8949. We ask that the IRS simply accept trade accounting as is, and only match proceeds on securities as it has done in prior years. Don’t try to match the unmatchable cost basis for 2011. If the IRS doesn’t waive matching, it will send hundreds of thousands of nasty tax notices to taxpayers. That will lead to great expense and very upset taxpayers. Perhaps, matching will get easier for 2012 tax returns, so we can reassess at that time.

http://www.greencompany.com/blog/index.php?postid=141

yeah..i've been saying same thing in other thread about new reporting rules. the intentions are good,but what a mess they created(as usual). good luck for them to figure out my return,but if there is an audit or any dispute over my return-i will be done with trading and reporting ANY taxes to irs. fuck it. just like that. i would rather just sit and do nothing,than wasting my time on this crap. simplify damn rules! current tax code is completely counterproductive..i've been saying this for years..

Posted by abducens on 03-21-12 02:06 AM:

Does anyone know where the 1256 amount for futures and options is listed on Sched D, I cant find a spot to list it!!

Posted by JackR on 03-21-12 02:31 AM:

Abducens:

The Futures info is obtained from your Form 6781, lines 6 and 7. You normally enter it on the Sch D worksheet. It will eventually be part of lines 4 and 11 of Sch D.

Jack

Posted by Robert A. Green on 03-21-12 04:48 AM:

Brokers are only reporting potential wash sales, not final wash sales - GreenTrader Weblog
http://www.greencompany.com/blog/index.php?postid=142

Posted by EricP on 03-21-12 11:21 AM:

Quote from Robert A. Green:

Brokers are only reporting potential wash sales, not final wash sales - GreenTrader Weblog
http://www.greencompany.com/blog/index.php?postid=142

If they are reporting potential (not actual) wash sales, then are those numbers being reported to the IRS? Should the trader file their taxes to show no wash sales (as appropriate), or do they need to show the wash sales (matching the broker), then deduct back out the wash sales elsewhere?

Posted by SteveH on 03-21-12 01:43 PM:

Eric,

A similar question is why is it necessary at all to show wash sale trades during the course of the first 11 mos. when you have no intention of trading those instuments for all of December? That is, if there's no losses from wash sales to carry over into the new year then you have nothing to report which leads to you having to report all those "potential wash sales" loss carry-forwards in the first place.

I got this kind of answer from the fairmark.com forums years ago. I don't report potential wash sales. I report actual ones.

So, don't turn potential wash sales into actual ones by either trading those instruments for either all of December or some or all of January of the next tax year. Personally, I choose to take the December non-trading route so that the proof is reconciled on one year's tax form instead of two.

And to the guy who asked about where to report Section 1256 contracts on his tax form...break down and pay 35 bucks and use a PC tax program and you won't have to worry about making those kinds of mistakes!

I strongly recommend going to the fairmark.com forums for tax questions. You've got years of great answers from the very simple to the very complex posted there.

Posted by Robert A. Green on 03-21-12 01:43 PM:

Yes, brokers have filed these 1099-Bs with incorrect wash sale information with the IRS. Although, taxpayers are requesting corrected 1099s from brokers, some brokers may not have solutions in place to correct the wash sale information.

We currently recommend reporting correct trade accounting, including wash sales on your Form 8949. Show the difference between your trade accounting and your 1099-Bs, so the IRS can match your reconciliation differences.

We recommend extension filings and we hope to narrow the gulfs here after April 15th. We expect corrected 1099 filings, and hope the IRS provides some relief, like not matching cost basis, and issues further guidance.

Posted by Robert A. Green on 03-21-12 01:49 PM:

Eric has it right. He broke the chain on wash sales - making them all go away - by not trading any substantially-identical positions in December.

I'll check the broker 1099 preparation rules to see if they are making an error in reporting potential wash sales versus actual wash sales. Remember, broker and taxpayer tax rules are apples and oranges. See my first Mar. 20 blog on that.

Posted by jackpearson on 03-22-12 07:13 PM:

Mr. Green,

Last week you mentioned a push to hold off on the cost basis rules for this year. Do you have any updates on that?

Thanks

Posted by gkishot on 03-23-12 12:13 AM:

If brokers have to report all transactions to IRS, why is it required from the traders to report the same transactions on 8949 form? How the IRS expects an average trader to reconcile hundreds of trades on 1099B and 8949 form without a special software ( under assumption that the records by a broker and the records by a trader exactly match which is not the case most of the time) ? I've noticed that 8949 form prepared by IB does not match even IB's own records in the monthly statements). My guess is that 8949 is done by a back office and monthly statements are issued by trading desk. How is it possible to reconcile records that do not match?

Posted by sprstpd on 03-23-12 12:50 AM:

Quote from gkishot:

If brokers have to report all transactions to IRS, why is it required from the traders to report the same transactions on 8949 form? How the IRS expects an average trader to reconcile hundreds of trades on 1099B and 8949 form without a special software ( under assumption that the records by a broker and the records by a trader exactly match which is not the case most of the time) ? I've noticed that 8949 form prepared by IB does not match even IB's own records in the monthly statements). My guess is that 8949 is done by a back office and monthly statements are issued by trading desk. How is it possible to reconcile records that do not match?

There are circumstances where IB wouldn't know enough information to report your taxes properly. Yes, I have a few transactions where my Flex statements (and daily statements) do not agree with IB's 8949 worksheet. Not sure what to say on that except I am going to report what my Flex statements say and explain the difference to the IRS.

Posted by Bob111 on 03-23-12 12:52 AM:

----I've noticed that 8949 form prepared by IB does not match even IB's own records in the monthly statements). ------

yes...same for 1099...and when i asked IB same question(why records didn't match?)-their answer- talk to your tax adviser...wtf? i don't have one..the guys who create both reports are unable to answer this question.

Posted by vikana on 03-23-12 03:29 AM:

Quote from Bob111:

----I've noticed that 8949 form prepared by IB does not match even IB's own records in the monthly statements). ------
.

That's unfortunately not new. I have never been able to match things up to the penny. It's always off by a little bit, typically less than one dollar over a year. I suspect it's rounding, as I've never been able to find the discrepancies.

A couple of week ago I had this crazy idea to import 2010 and 2011 into Quicken in the hopes of getting accurate accounting with wash loss etc. That produced a third and different result for cost base etc. Sort of embarrassing ...

__________________
Free your mind

Posted by rwk on 03-23-12 03:51 AM:

Quote from vikana:
That's unfortunately not new. I have never been able to match things up to the penny. It's always off by a little bit, typically less than one dollar over a year. I suspect it's rounding, as I've never been able to find the discrepancies.

My yearend reports matched the monthlies to the penny until I switched to IB's unbundled commissions. Since then, they have always been off by a few dollars. That bothered me at first, but now I don't sweat it. I think the variances are due to fees and rebates coming in late. I make sure my tax return matches the 1099 though.

Posted by vikana on 03-23-12 04:43 AM:

rwk,
Interesting ... I'm unbundled as well. I do the same as you regarding taxes. Close enough.

__________________
Free your mind

Posted by Don87109 on 03-23-12 02:17 PM:

Quote from vikana:

That's unfortunately not new. I have never been able to match things up to the penny. It's always off by a little bit, typically less than one dollar over a year. I suspect it's rounding, as I've never been able to find the discrepancies.

A couple of week ago I had this crazy idea to import 2010 and 2011 into Quicken in the hopes of getting accurate accounting with wash loss etc. That produced a third and different result for cost base etc. Sort of embarrassing ...

Last time I tried to use Quicken it seemed to have flaws for stock trading. Or at least very inconvenient to use. As I recall it did not handle short stock sales very well. I think it kept adding shares or some other inconvenient stuff, I don't recall the details. Anyway that was a couple of years ago.

I assume that Quicken has fixed these problems based on your ability to import two whole years of transactions. Can you expand a little bit on how you did that? Did you download the IB monthly statements for each month?

BTW, when you say "it was sort of embarrassing" did you mean that Quicken gave bad results?

Don

P.S. my IB 1099 also doesn't look right and I'd like to see what Quicken says.

Posted by Robert A. Green on 03-23-12 03:33 PM:

Quote from jackpearson:

Mr. Green,

Last week you mentioned a push to hold off on the cost basis rules for this year. Do you have any updates on that?

Thanks

Should I write up a Petition to Rally Congress on this matter?

Earlier this week, I emailed top IRS people in leading roles for cost-basis reporting our request that the IRS computers not match taxpayer Form 8949 filings to broker-provided 1099-Bs. I asked the IRS to read all our content on cost-basis reporting problems.

I understand a leading national CPA accounting group is working on a similar request, but they are moving more slowly, which is expected for institutions arranging actions by meetings and consensus. Hopefully, the IRS is informed on what is happening and they are seeing very botched Form 1099-Bs filed by brokers, and Form 8949's filed by taxpayers. The IRS needs to provide some relief for taxpayers soon.
I don’t think the IRS will waive Form 8949 and the IRS can’t ask brokers to issue 1099-Bs under the old rules. This means we all have to struggle through cost-basis reporting this tax filing season.

Maybe, I should write up an online petition to Rally Congress like I did for blocking financial-transaction taxes. Would you all sign the petition and spread the word for other traders to sign it too? Congress passed these new rules and they should be responsible to taxpayers’ for correcting this confusion, unfair cost and pain.

Here is new content (next post) on our Cost-Basis Reporting page http://www.greencompany.com/Educati...eporting.shtml.

Perhaps, I can start with this content for the petition. Please add your comments for inclusion in the petition too.

Posted by Robert A. Green on 03-23-12 03:34 PM:

The Basics on Cost-Basis Reporting:

If you trade or invest in securities, you need to learn about “cost-basis reporting,” a new set of IRS rules for taxpayers starting with 2011 tax filings. Previously, taxpayers could simply enter their capital gains and losses (proceeds, cost basis and holding period) onto Schedule D of their individual income tax return. That’s no longer allowed and get ready for a real mess.

Under the new cost-basis reporting regime, taxpayers must decipher broker-provided Form 1099-Bs. In prior years, taxpayers and their accountants could easily use a Form 1099-B to enter proceeds from each securities sale on their Schedule D. Taxpayers then entered their own record of cost-basis information and they were done. Investors often looked up the original purchase price in an earlier year brokerage statement and considered stock splits or other corporate actions, which are rare. Active traders generally used software like TradeLog, which downloaded all trade executions and provided an easy-to-use Schedule D-1 attachment.

You would think that when brokers entered the picture providing cost-basis information to taxpayers and the IRS on Form 1099-Bs, taxpayer compliance would be easier. You would be very wrong!

Take one look at your Form 1099-B and you will see the problem. While stock proceeds may look the same as prior years, the new cost-basis information is extremely confusing. Some Brokers mark cost information with quirky new codes like P (provided to the IRS), N (not provided to the IRS) and W (wash sales). Some brokers do not provide totals for the amounts they are reporting. Plus there are covered securities, non-covered securities and other. All individual trades must be entered on the new tax form 8949, which includes Parts A (proceeds and cost basis both reported to the IRS), B (proceeds reported to the IRS but not cost basis) and C (other or not reported on a 1099). Separate Form 8949s must be filed for short term and long term. Add it up: That’s up to six different categories on the Form 8949s instead of the single Schedule D required in the past. This is a huge burden and is very confusing for taxpayers.

That’s just a fraction of the problem. It turns out the rules brokers are required to follow for 1099-B reporting are different from the rules for taxpayers. For example, brokers report “potential wash sales” based on “identical positions” (same symbol), whereas taxpayers must report actual wash sales based on “substantially identical positions” (between stock and options). There’s a long list of other problems on wash sales, too.

Wash sales are a major factor for investors and traders. Using a 1099-B for wash sale reporting is a big mistake. IRS cost-basis reporting rules state that taxpayers should not rely on 1099-Bs for tax reporting purposes. What?

The IRS requires brokers to only report 2011 cost basis on “covered” securities. Most brokers don’t include 2010 cost basis, which means they omit wash sales losses deferred from 2010. The IRS should have required standardization, as broker reporting is all over the map. Many brokers are making errors too.

Phasing in the rules seems to be part of the problem. While the IRS phased in the new rules for brokers, it did not do so for taxpayers. The IRS hammers taxpayers by deputizing them as accountants to figure out all the inevitable discrepancies between 1099-Bs and Form 8949 results.

What’s happening? Most investors and active traders are upset, throwing in the towel and filing extensions. They’re being forced to hire accountants and experts when they’re accustomed to preparing their own tax returns with consumer software. Unsuspecting taxpayers are filing and not realizing they’re either overpaying or underpaying their taxes. The devil is in the details — errors on Form 8949 are compounded onto Schedule D, and the final Schedule Ds don’t add up.

Taxpayers have no confidence on wash sales — they’re extremely hard to figure out by hand.

We suggest reading our blogs on this saga to understand the new IRS rules, how 1099-Bs are constructed and how you should handle Form 8949. We recommend using software like TradeLog and filing an extension. We hope for relief from the IRS soon.

Posted by tomahawk on 03-25-12 11:29 PM:

Quote from Robert A. Green:

Eric has it right. He broke the chain on wash sales - making them all go away - by not trading any substantially-identical positions in December.

I'll check the broker 1099 preparation rules to see if they are making an error in reporting potential wash sales versus actual wash sales. Remember, broker and taxpayer tax rules are apples and oranges. See my first Mar. 20 blog on that.

Robert, thank you for all the valuable info you've shared in this thread.

Re the not trading anything in Dec. making wash sales "go away" ... any advice on how to handle the situation where my broker statements say otherwise? (they show "disallowable wash sales" figures even though I had no securities trades whatsoever in all of December 2011).

Maybe I don't understand the way they work, but I too was under the impression wash sales would be a non-issue if I stopped all trading other than futures for the month of December.

Also, other than wash sales issues, for the new 2011 rules do I have all the information necessary to correctly complete the forms if I have my own accurate tally of a) cost basis, b) sales price, and c) proceeds(gain or loss), including commisions, for each trade? .... Thx

Posted by Robert A. Green on 03-26-12 10:40 PM:

Petition: Securities Traders Need Tax Relief on IRS Cost-Basis Reporting Rules
http://greentradertax-traders-assoc...ng-ru/?m=758320

New “cost-basis reporting” rules for 2011 are not functioning properly. Botched implementation is unfairly causing millions of taxpayers to significantly overpay their tax bills. The IRS should have issued the same set of rules for brokers and taxpayers, but did not. How can the IRS now send tax notices and audits to hundreds of thousands of taxpayers over 1099-Bs prepared under one set of rules, while holding taxpayers accountable to another set of rules? Taxpayers did not sign up to be deputy accountants for this mess!

Kindly sign in below to read our full petition. Please sign and send it to your Congressmen very soon.

Posted by gkishot on 03-27-12 12:16 AM:

Quote from tomahawk:

Robert, thank you for all the valuable info you've shared in this thread.

Re the not trading anything in Dec. making wash sales "go away" ... any advice on how to handle the situation where my broker statements say otherwise? (they show "disallowable wash sales" figures even though I had no securities trades whatsoever in all of December 2011).

Maybe I don't understand the way they work, but I too was under the impression wash sales would be a non-issue if I stopped all trading other than futures for the month of December.

Also, other than wash sales issues, for the new 2011 rules do I have all the information necessary to correctly complete the forms if I have my own accurate tally of a) cost basis, b) sales price, and c) proceeds(gain or loss), including commisions, for each trade? .... Thx

Disallowed wash sale loss was a concern for me too but after the total numbers were entered into schedule D including total wash sale as adjustment it matched my simple p&l calculations (no wash sale adjustments) on 8949. So if they update cost basis correctly (which I believe now they do) it might not be a problem for final p&l.

Posted by Robert A. Green on 03-27-12 12:48 AM:

Quote from tomahawk:

Robert, thank you for all the valuable info you've shared in this thread.

Re the not trading anything in Dec. making wash sales "go away" ... any advice on how to handle the situation where my broker statements say otherwise? (they show "disallowable wash sales" figures even though I had no securities trades whatsoever in all of December 2011).

Maybe I don't understand the way they work, but I too was under the impression wash sales would be a non-issue if I stopped all trading other than futures for the month of December.

Also, other than wash sales issues, for the new 2011 rules do I have all the information necessary to correctly complete the forms if I have my own accurate tally of a) cost basis, b) sales price, and c) proceeds(gain or loss), including commisions, for each trade? .... Thx

For sure, many brokers botched the wash sales. TradeLog will show the correct P&L and wash sale adjustments. But, if your 1099-B has errors on wash sales, we expect the IRS to send tax notices about it. tradeLog will show the necessary reconciliation difference on Form 8949, but that extra line item can draw IRS attention too. We are filing extensions and we want brokers to correct 1099s and / or the IRS to hold the notices. Don't rush to file, you will be among the first one audited.

Please sign our petition to get relief on this problem.http://greentradertax-traders-assoc...ng-ru/?m=758320

Posted by Robert A. Green on 03-27-12 12:50 AM:

Quote from gkishot:

Disallowed wash sale loss was a concern for me too but after the total numbers were entered into schedule D including total wash sale as adjustment it matched my simple p&l calculations (no wash sale adjustments) on 8949. So if they update cost basis correctly (which I believe now they do) it might not be a problem for final p&l.

Same answer as my last post. Yes, don't include phony wash sales reported by the broker on the 1099-B, but you still have to worry about an IRS notice. It pays to force the broker to fix the 1099 rather than endure a tax notice or exam later. The extension gives you more time to let the dust settle here.

Posted by tomahawk on 03-27-12 01:50 AM:

Quote from gkishot:

Disallowed wash sale loss was a concern for me too but after the total numbers were entered into schedule D including total wash sale as adjustment it matched my simple p&l calculations (no wash sale adjustments) on 8949. So if they update cost basis correctly (which I believe now they do) it might not be a problem for final p&l.

Thanks gk. Unfortunately I can't seem to reconcile the wash sales they report on even the simplest statement (only 8 trades for the year, none in December). So tomorrow I'll take it up with the broker and see what they have to say about it.

Posted by tomahawk on 03-27-12 02:05 AM:

Quote from Robert A. Green:

Same answer as my last post. Yes, don't include phony wash sales reported by the broker on the 1099-B, but you still have to worry about an IRS notice. It pays to force the broker to fix the 1099 rather than endure a tax notice or exam later. The extension gives you more time to let the dust settle here.

Thanks Robert. I always hate relying on someone else to make things right for me on an unknown or open-ended time horizon, but if brokers are actually complying that would be ideal. It sure feels like providing the right numbers (on time) with a detailed explanation for any discrepancies ought to be the right way to go, but I trust your judgement on the likelihood of that triggering a notice.

Petition signed.

Posted by Lucky12 on 03-28-12 03:27 AM:

Hi guys
I day traded stocks in 2011 with thousands of transactions.
All of my positions were closed the same day they were opened. I never carried a position overnight.
I noticed that my 1099 is showing a huge list of noncovered securities and box 6a is checkmarked.
Will someone please explain what a noncovered security is and if I should have this since I am daytrading?
Thank you

Posted by sprstpd on 03-28-12 12:11 PM:

Quote from Lucky12:

Hi guys
I day traded stocks in 2011 with thousands of transactions.
All of my positions were closed the same day they were opened. I never carried a position overnight.
I noticed that my 1099 is showing a huge list of noncovered securities and box 6a is checkmarked.
Will someone please explain what a noncovered security is and if I should have this since I am daytrading?
Thank you

It just means that the IRS has not required your broker to report cost basis for those particular securities (yet). In the future, those securities will move to the covered section. There is nothing wrong with having securities in the noncovered section.

Posted by Lucky12 on 03-28-12 06:09 PM:

Thank you sprstpd for explaining this.
I have one more thing I'm concerned about.
When I opened my account with the broker, I opened a joint account with my wife.
She is listed as the primary account holder on the account since she has a full time job, which met the requirements for opening the margin account.
I was laid off at that time so I could not qualify to open the account under my name.
When I do my taxes each year, I do mark to market under trader status under my name and ssn.
Is it ok to do this under my name and ssn if we file taxes jointly since my wife is the primary holder?

Posted by sprstpd on 03-28-12 09:25 PM:

Quote from Lucky12:

Thank you sprstpd for explaining this.
I have one more thing I'm concerned about.
When I opened my account with the broker, I opened a joint account with my wife.
She is listed as the primary account holder on the account since she has a full time job, which met the requirements for opening the margin account.
I was laid off at that time so I could not qualify to open the account under my name.
When I do my taxes each year, I do mark to market under trader status under my name and ssn.
Is it ok to do this under my name and ssn if we file taxes jointly since my wife is the primary holder?

It would personally make me feel uncomfortable. At some point, I would open a new account just in your name and just trade from there. Then if the IRS ever tries to contest your trader status, you would have more "ammo." If you were audited now, it may or may not be a sticking point. But I'd rather be safe than sorry.

Posted by Robert A. Green on 03-29-12 03:30 PM:

See smoking guns on botched 1099-Bs from securities brokers in our Mar. 28 Webinar recording

March 28, 2012

By Robert A. Green, CPA

Our March 28 Webinar shows smoking guns on botched 1099-B reporting from brokers, apples and oranges in the rules between brokers and taxpayers and why it’s irresponsible to file a complete tax return based on these 1099-Bs. Any accountant who signs a tax return with these unreconciled differences is skirting on the edge of malpractice. Don’t rush to file a return with these errors and problems. The early bird won’t get the worm; he may get audited by the IRS.

See our three important Webinars on cost-basis reporting here. http://www.greencompany.com/Educati....shtml#webinars

In the March 28 Webinar, our TradeLog chief accountant shows a 1099-B reporting more than $50 million of incorrect wash sale loss deferrals because the broker reported potential wash sales rather than actual wash sales. TradeLog, however, reports the correct wash sales amount of under $20,000. TradeLog prepares Form 8949 and shows this $50 million plus net “adjustment,” really an overall difference, including the wash sale errors. We think it’s foolish to file a tax return with that type of large difference — it will surely attract undue attention from the IRS. Why not force the broker to fix the wash sale reporting first? Few brokers will reply to these requests before April 15.

See how a second broker’s 1099-B doesn’t match TradeLog’s cost-basis reporting information. We simply can’t trace the broker’s cost basis amounts to any correct raw data in TradeLog — which downloads actual trades — and we can’t imagine what the broker did wrong here. We know brokers sliced and diced raw data into all sorts of categories in an attempt to comply with new IRS rules and we’ve seen several cases of bad accounting, where brokers adjust proceeds when they should adjust cost-basis and vice versa. Watch us demonstrate how this same broker provided the client with a “Realized Gain or Loss Report” in his 1099-B Supplemental Information (a section that is not sent to the IRS). This report continues a perpetuation of the unexplained errors stated above. If the client relies on this report, his tax return will be very wrong.

We usually don’t name names, but we do for these two large online brokerage firms. It’s time they fess up.

While TradeLog software is the best solution in most cases, you need to teach it how to handle your broker’s 1099-Bs. There are many switches to turn on or off so TradeLog can simulate how your broker handled the cost-basis reporting rules. If you find differences, this is the first place to revisit. For example, did your broker report all ETFs or just securities ETFs (RICs)? The latter is correct. As we explain on the Webinar, it’s not uncommon to find download errors which require correction. Plus, TradeLog doesn’t calculate corporate actions — you need to calculate those by hand.

This year more than ever before, you need a trained TradeLog accountant and CPA firm to review your TradeLog data files, your accompanying Form 1099-Bs and other Supplemental Information provided with 1099-Bs. On almost every file to date, we’re finding incorrect accounting items that require our assistance, investigation and adjustment. Don’t waste days or weeks pulling your hair out; get the help you need from a person highly experienced in finding the differences.

File a valid extension by April 17 to have six more months to get this right. Don’t forget about the very important Section 475 MTM election due by April 17 with the extension filing, too.

Our Petition to Rally Congress is having impact! 559 People Have Sent 1,323 Letters and Emails. We need 20,000 signers and 50,000 letters and emails. Please sign, and also share it with others. http://greentradertax-traders-assoc...ng-ru/?m=758320

Posted by Lucky12 on 03-29-12 04:15 PM:

Quote from sprstpd:

It would personally make me feel uncomfortable. At some point, I would open a new account just in your name and just trade from there. Then if the IRS ever tries to contest your trader status, you would have more "ammo." If you were audited now, it may or may not be a sticking point. But I'd rather be safe than sorry.

Thank you I just opend new account.

Posted by AAAintheBeltway on 03-29-12 05:35 PM:

>>We usually don’t name names, but we do for these two large online brokerage firms. It’s time they fess up. <<

So who are the two large online brokerages?

And has any broker done a good job on this?

Posted by Robert A. Green on 03-30-12 02:18 AM:

We name the names in our Webinar since we showed redacted 1099-Bs but anyone in the know can recognize them by broker. We showed example problems for Fidelity and Schwab, but I've seen reports from our CPAs and TradeLog about problems with almost every broker and clearing firm. It's a wide-scale problem.

TradeLog lists some known problems with various brokers on their site under Tax Topics http://www.tradelogsoftware.com/tax...099b-problems/.

I was hoping this Thread could assemble a good list, too. Our CPAs and TradeLog accountants are very busy now before April 17th. We will all reply more with known problems after 4/17.

File an extension now as best you can. Our blog gives info on extension relief tonight, posting soon. Thanks.

Posted by JackR on 03-30-12 02:35 AM:

From the TradeLog website:

Problem 1099 info they have dealt with so far:

Charles Schwab
Etrade
Fidelity
Interactive Brokers
Penson
TD Ameritrade
TradeStation

The IRS rules must be really badly written. It is hard to believe that these major brokers are all making similar mistakes.

Jack

Posted by Robert A. Green on 03-30-12 04:21 PM:

Extensions: Some traders may qualify for IRS penalty relief
http://www.greencompany.com/blog/index.php?postid=145

It's getting too late to focus on complete tax return filings due by April 17. (April 17 is the tax deadline this year since April 15 is a Sunday and April 16 is a federal holiday in Washington D.C.) Instead, focus on filing an automatic extension to get an additional six months to file. While extensions are fairly basic one-page filings - listing estimated tax liability, taxes paid to date and balances due - you should be aware of several important strategies, pitfalls and relief from the IRS.

Excerpts:

New for 2011 tax returns: Form 1127-A relief
Some business traders and other taxpayers may qualify for new relief from the IRS provided by filing new tax Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship. If you qualify to use Form 1127-A rather than the automatic extension Form 4868, you will be exempt from nasty penalties associated with paying less than 90 percent of taxes owed by April 17, and related rules mentioned below.............

Securities traders need to file extensions
Due to the cost-basis reporting crisis on 2011 tax returns, we are advising securities traders to file for automatic extensions, rather than try to rush tax returns filings (with problems) by April 17. Securities traders need more time to request corrected 1099-Bs from their brokers and hopefully fully reconcile differences in trade-accounting reporting on Form 8949. We don't want traders to be audited by the IRS or to receive tax notices caused by reconciliation differences with 1099-Bs. If you haven't signed our Petition yet, please do soon...........

File for an automatic extension
It's important to file an automatic extension by April 17, whether you can pay the taxes owed or not. Paying what you owe is the safe way to avoid penalties. If you can't pay 90 percent, according to Form 4868 instructions your extension can still be valid if you demonstrate reasonable cause and these conditions in the eyes of the IRS:........

Penalties explained........

What to do if you can't pay on time?
If you can't pay 90 percent of your tax liability by April 17, first see if you qualify to use Form 1127-A (see above) for special relief on paying later without penalties. But, file this form on time. If you don't qualify, file Form 4868 (Automatic Extension). If you are short cash, pay what you can, and try to impress the IRS with reasonable cause when you request penalty abatement after filing your tax return.........

Don't forget new Section 475 MTM elections are due by April 17......

Posted by Robert A. Green on 03-31-12 04:19 PM:

Last-Minute Tax Tips - WSJ.com Tax Report
http://online.wsj.com/article/SB100...1246685642.html

Ms. Saunders interviewed and quoted my partner Darren Neuschwander and me about the cost-basis reporting problems. See my comment #1. Kudos to the highly-respected Ms. Saunders for getting Fidelity and Schwab to admit to some errors on 1099-Bs. We showed Ms. Saunders our smoking gun blog and Webinar with major Fidelity and Schwab errors. But, these brokers dismissed the errors as minor and as representing a small percentage of their 1099-Bs. That's not what we are seeing on our client's tax files and hearing from traders. I guess it's hard for reporters to take on the biggest advertisers in the financial media.

Please help by posting comments on this WSJ article. We need to pressure the brokers and IRS into fixing this mess. And, please keep signing our Petition. Thanks, we can fix this mess if we fight it together.

Posted by Jreality on 04-02-12 04:40 PM:

FWIW, my broker got Penson to issue a corrected 1099, but I notice that my request for Penson to upwardly adjust the cost basis of "covered" replacement shares was completely ignored, so the 1099 still is problematic. The shares were replacements for uncovered shares sold at a loss less than 30 days before the replacement shares were bought. I'm asking my broker to try again, and/or give me a reason as to why Penson isn't cooperating.

Posted by musicman on 04-02-12 05:11 PM:

IB would not correct my 8949 even though the wash sales were totally out of whack on the QQQ trades I did. The cumulative loss I had for that stock for 2011 was carried forward into 2012. I did not trade the QQQ for the entire month of March so my wash sales from 2011 should clear up. I have to say I am not really confident that IB will get this right but I will have to wait and see as I won’t know for sure until I get my 8949 for 2012. I now trade mostly options as they have not started to consider wash sale reporting to the IRS yet. Robert Green do you know when the IRS will require brokerage firms to report cost basis and wash sales on Options ?? For stocks this year if I have a loss prior to the end of November I will not trade them in December so my wash sales will clear out. I am low a low volume trader – maybe I do 200 round turn trades a year.
My cost reporting from Schwab seemed to be ok .

Posted by Jreality on 04-02-12 05:52 PM:

I believe my IB 1099 is wrong too, and wash sales are likely the culprit. The raw non-wash-adjusted trades in the Statement of Funds are correct, but I believe that something likely went wrong with the wash-sale calculations on both the 1099 and on the activity statements. Frankly, I have no idea exactly what the IB problem actually is, so I am reluctant to try to get it corrected, but the numbers just don't seem to jibe with the raw non-wash-adjusted trades. It isn't as erroneous as my Penson issue though.

Posted by Robert A. Green on 04-02-12 06:03 PM:

One of our clients emailed us the below.

Spoke a final time to Ameritrade regarding the Wash Sale. They use Commerce clearing(maker of Gainskeeper) for their tax reporting. They are suppose to be the experts. Because the IRS instructions on the WashSale disallowed line on the 1099 were vague, they decided to do cumulative wash sales (I know makes no sense). They state they are not saying these are wash sales disallowed per the rules. In fact, there is a Gainskeeper report on Ameritrade site, which I believe I gave x (CPA in our firm), that verifies I have no wash sales either. So I don't know what clarity the IRS will provide through the summer to allow me to file, but maybe we just include that Gainskeeper report along with a statement of how Ameritrade caclulated that line and that will prevent an audit. I don't know. Your the experts but just a thought.

----------

PS from Green. Gainskeeper doesn't do wash sales between stocks and options as the rules require for taxpayers. TradeLog does.

Posted by sledgeyum on 04-02-12 10:16 PM:

Hi I use gainskeeper from tda for last 5 years. Only trade stocks there.

Finally import without conversion to turbotax with txf file.

Tda didn't report wash sales had a dash I believe on their 1099b form.

Quote from Robert A. Green:

One of our clients emailed us the below.

Spoke a final time to Ameritrade regarding the Wash Sale. They use Commerce clearing(maker of Gainskeeper) for their tax reporting. They are suppose to be the experts. Because the IRS instructions on the WashSale disallowed line on the 1099 were vague, they decided to do cumulative wash sales (I know makes no sense). They state they are not saying these are wash sales disallowed per the rules. In fact, there is a Gainskeeper report on Ameritrade site, which I believe I gave x (CPA in our firm), that verifies I have no wash sales either. So I don't know what clarity the IRS will provide through the summer to allow me to file, but maybe we just include that Gainskeeper report along with a statement of how Ameritrade caclulated that line and that will prevent an audit. I don't know. Your the experts but just a thought.

----------

PS from Green. Gainskeeper doesn't do wash sales between stocks and options as the rules require for taxpayers. TradeLog does.

Posted by lindq on 04-04-12 04:10 PM:

Need Simple Guidance - Washsales

I'm looking at an 8949 from IB. I'm confused about the general issue of how the "(G) Adjustments to gain or loss, if any", should impact the overall calculation of gains when including Sales Price and Cost or other Basis.

Simple example:

(e) Sales Price is 500,000
(f) Cost is 450,000
(g) Adjustment is 25,000

Without the Wash Sale Adjustment the overall gain would be 50K. But is the Adjustment added to that, or subtracted from it? Is it a positive, or a negative, in the calculation?

Thanks.

__________________
Keep it simple.

Posted by JackR on 04-04-12 04:35 PM:

Lindq:
This is from the IB webinar on the 8949 -
Calculating Gain or loss on Form 8949
Taxable Gain or loss for individual transactions is not calculated on Form 8949.
To calculate gain or loss:
Column E (sale proceeds) – Column F (cost basis) +/- Column G (adjustments ) = Gain or loss

http://www.interactivebrokers.com/w...ar_Form8949.pdf

Jack

Posted by lindq on 04-04-12 04:53 PM:

Quote from JackR:

Lindq:
This is from the IB webinar on the 8949 -
Calculating Gain or loss on Form 8949
Taxable Gain or loss for individual transactions is not calculated on Form 8949.
To calculate gain or loss:
Column E (sale proceeds) – Column F (cost basis) +/- Column G (adjustments ) = Gain or loss

http://www.interactivebrokers.com/w...ar_Form8949.pdf

Jack

Thanks JackR. But you lost me on that last line of calculation, where you have +/- before Column G (adjustments). Assuming G is a positive number, is G added or subtracted from the total of Sale-Cost?

__________________
Keep it simple.

Posted by JackR on 04-04-12 06:01 PM:

Lindq:

I basically trade futures with an occasional equity/option trade. As such I don't have any trades showing an adjustment that I can look at.

The IB example shows +/- G. Your example shows a positive "G" number. Do any of your actual trades also have negative "G" numbers? Comparing the two to what you think is correct would probably explain it.

You might also listen to the webinar. It probably expands on the written info. It was pretty good, though I did not listen that closely to parts that did not directly affect me so I can't offer any more help.

https://interactivebrokers.webex.co...e185f9f5608ee15

Jack

Posted by gaj on 04-05-12 12:13 PM:

one of my old brokerages has a message stating that penson will get the corrected 1099's out on....april 9.

they've already changed it at least once and i think twice in the last week (it was april 4, and i think prior to that it was april 2).

i see on another penson-clearing brokerage that they mailed out 1099s on april 2 and some were wrong, and they're going to have to correct them again / don't trust the ones on april 2.

thank goodness i filed an extension.

Posted by pvram68 on 04-11-12 06:11 AM:

I trade same few stocks many times over in the year, more as a swing trader. Normally I close with a month at the most, many times within weeks or even days.

I do make sure that at the end of the year, I have clean slate, no positions - or at the most, one or two positions.

I have my broker (IB) sending detailed wash sale transactions but as 100% of my trades were short term and closed within the same year, I write on the Schedule D1 (now F0rm 8949) clearly that I am not considering any wash sales.

Had no problem in the past, and hoping the same this year too

__________________
-Ram

Posted by sprstpd on 04-11-12 12:10 PM:

Quote from pvram68:

I do make sure that at the end of the year, I have clean slate, no positions - or at the most, one or two positions.

You have to be out of the stock for 30 days across the year boundary for you to safely ignore the wash sale rules. Even then, your Schedule D and your 1099B won't match which could be a red flag.

Posted by gaj on 04-13-12 04:46 PM:

1) tradestation sent something out just now saying "hey, some 1099-b's are likely wrong, including yours!" and it won't be issued before april 17.

2) found one of my penson accounts had sales and buys reversed on the 1099b. it hasn't been corrected yet, so i'll have to call my (former) broker and get them to get penson to fix it.

Posted by Robert A. Green on 04-13-12 04:50 PM:

From TradeStation to a client of ours.

Dear Client:
Previously, we notified you, in conjunction with sending out your original 1099-B Statement, that the new IRS cost basis reporting rules, and the delays associated with processing trade data to accurately reflect the cost basis for your 2011 trades, may cause TradeStation to issue an amended 1099-B Statement.
We have now determined that some customers, including you, might have received incomplete information so we will be issuing an amended 1099-B Statement as soon as possible. Unfortunately, it does not appear that the amended 1099-B Statement will be issued prior to the April 17th tax filing deadline. As you know, we cannot give you tax advice, so we encourage you to speak with your tax advisor to determine how best to manage your tax filing obligations, including whether it makes sense to file for an extension or, alternatively, amend your tax filing once you receive the amended 1099-B Statement.
For non-tax related questions, call our Client Services Department at 800.822.0512 or 954.652.7900.
We apologize if this delay has caused you any inconvenience and we thank you for your understanding and patience.
Sincerely,
William P. Cahill
President & Chief Operating Officer
TradeStation Securities, Inc.

Posted by Robert A. Green on 04-13-12 04:52 PM:

Extensions & MTM Elections due by April 17th.
http://www.greencompany.com/blog/index.php?postid=145

Cost-Basis Reporting Problems & Solutions
http://www.greencompany.com/Educati...Reporting.shtml

We have good reason to believe - can't say how - that the IRS is very behind the curve here and they don't even realize that 1099-Bs are a disaster this year on cost-basis reporting. While we hoped to get relief from the IRS on this matter, we learned we first need to educate them on the problem. And, they will need to see it for themselves. The early bird tax return filiers won't get the worm, they will get audited.

Hold your powder, file an extension and stay tuned.

Posted by jackpearson on 04-13-12 05:30 PM:

Quote from Robert A. Green:

Extensions & MTM Elections due by April 17th.
http://www.greencompany.com/blog/index.php?postid=145

Cost-Basis Reporting Problems & Solutions
http://www.greencompany.com/Educati...Reporting.shtml

We have good reason to believe - can't say how - that the IRS is very behind the curve here and they don't even realize that 1099-Bs are a disaster this year on cost-basis reporting. While we hoped to get relief from the IRS on this matter, we learned we first need to educate them on the problem. And, they will need to see it for themselves. The early bird tax return filiers won't get the worm, they will get audited.

Hold your powder, file an extension and stay tuned.

Let's say by the end of the calendar year, the 1099's STILL are wrong.

At some point, you have to file.

I know my numbers are correct. I know the 1099's are wrong.

In a discrepancy, you have to pay what is right.

Why not file & if the IRS has any questions, show them your trade history, which they have anyway from your 8949's, and they'll see you're correct?

In an audit, you'd owe nothing because you did your taxes correct.

I don't even see why you'd get audited when you give them all the info and everything matches except for the faulty 1099's which aren't my responsibility.

You can't file based on 1099's, you file based on your trades.

Why will updated 1099-B's effect your tax filing?

You can figure your taxes today & know what you owe.

Any changes on the 1099-B's won't change the amount you owe by 1 penny.

Any thoughts on my logic?

Posted by Robert A. Green on 04-13-12 06:40 PM:

Agree with you, but still think it's better to wait for final corrected 1099-Bs, so you can at least reconcile to those 1099-B amounts and show that adjustment/plug number on Form 8949 - if it's large, otherwise no plug number is better.

Hopefully, within 4 months, the brokers will fix 1099-Bs better and the IRS will wake up to the problem and stop their tax-notice presses.

Why rush to get a tax notice, when you can wait and hopefully not get one?

Tax notices can be disturbing and the IRS can go fishing on your expense. It can lead to unending questions about wash sales, trader tax status Sch C expenses and much more.

Tax exams are the worst and the IRS is starting to get out of control again on them again.

Posted by TraderStephen on 04-13-12 07:22 PM:

I've noticed a problem with E*Trade 1099-Bs. Apparently they used specific lot identification IF you identified the lot prior to the trade. However, if you identified specific lots AFTER the trade (but before settlement), the 1099-B uses FIFO instead of the specific lot. The system itself has the correct tax lot identification when you log in, but the 1099-B doesn't reflect the specific lot identification.

This appears to be a systemic issue rather than an isolated mistake, but I'm still plugging through 50 or so pages on a line-by-line basis.

Posted by AAAintheBeltway on 04-13-12 07:37 PM:

Robert,

Am I correct in assuming the issue is soley to do with the wash sale adjustments? I see on one of my 1009's that the broker increased the basis for every potential wash sale, and reported a cumulative number for all the disallowed losses. What the point of all that was is beyond me. Adjusting for those disallowed losses will not obviously produce a correct net, since there could have been considerable double counting.

Posted by Robert A. Green on 04-13-12 08:03 PM:

Quote from AAAintheBeltway:

Robert,

Am I correct in assuming the issue is soley to do with the wash sale adjustments? I see on one of my 1009's that the broker increased the basis for every potential wash sale, and reported a cumulative number for all the disallowed losses. What the point of all that was is beyond me. Adjusting for those disallowed losses will not obviously produce a correct net, since there could have been considerable double counting.

Wash sale reporting is the biggest problem with 1099-Bs, but there are many other types of problems, too. Everything from adjusting purchases, when they should adjust proceeds to vice versa, omitting transactions, double counting transactions, handling short sales wrong, and more. It's almost a comedy of errors, but no one is laughing.

What you describe above are "potential wash sales" as I wrote about on "Brokers are only reporting potential wash sales, not final wash sales" http://www.greencompany.com/blog/index.php?postid=142

There are plenty of other problems with wash sales, too. Per my blog "IRS, why force taxpayers to reconcile securities-broker 1099-Bs to tax returns, when your rules are apples vs. oranges?" at http://www.greencompany.com/blog/index.php?postid=141

Wash sales are bound to be wrong:
When it comes to wash sales, there are a multitude of things that can and will go wrong, and that messes up cost basis and reconciliations for securities traders (unless they use Section 475 MTM and are exempt from wash sales).

First, many brokers are using back-office tax-accounting solutions that may botch wash-sale reporting, since they have not focused on it much in prior years. Second, there is the cost-basis rules transition problem mentioned earlier, with brokers omitting 2010 wash sale cost basis deferred into 2011. Third, most brokers rushed 1099-Bs to the printer before doing an end of January wash sale calculation (covered earlier). Fourth, most brokers report wash sales between “identical positions” (the same symbol only), whereas, taxpayers are required to report wash sales between “substantially identical positions” (such as between stocks and options). How can the IRS ask brokers to calculate wash sales according to identical positions only and taxpayers by substantially identical position? Even if brokers could get all the above right, broker-provided wash sales would still be wrong because brokers only report wash sales in one account, whereas a taxpayer must report wash sale analysis across all taxable accounts, including IRAs.

I wrote a draft blog, which I will publish soon calling for a full-scale repeal of the dumb wash sale rules. They make no sense for active traders.

Posted by gaj on 04-13-12 09:09 PM:

penson's now correcting the 1099s again, as of 4/12, for one of my brokers...

Posted by AAAintheBeltway on 04-14-12 05:31 PM:

Quote from Robert A. Green:

Wash sale reporting is the biggest problem with 1099-Bs, but there are many other types of problems, too. Everything from adjusting purchases, when they should adjust proceeds to vice versa, omitting transactions, double counting transactions, handling short sales wrong, and more. It's almost a comedy of errors, but no one is laughing.

What you describe above are "potential wash sales" as I wrote about on "Brokers are only reporting potential wash sales, not final wash sales" http://www.greencompany.com/blog/index.php?postid=142

There are plenty of other problems with wash sales, too. Per my blog "IRS, why force taxpayers to reconcile securities-broker 1099-Bs to tax returns, when your rules are apples vs. oranges?" at http://www.greencompany.com/blog/index.php?postid=141

Wash sales are bound to be wrong:
When it comes to wash sales, there are a multitude of things that can and will go wrong, and that messes up cost basis and reconciliations for securities traders (unless they use Section 475 MTM and are exempt from wash sales).

First, many brokers are using back-office tax-accounting solutions that may botch wash-sale reporting, since they have not focused on it much in prior years. Second, there is the cost-basis rules transition problem mentioned earlier, with brokers omitting 2010 wash sale cost basis deferred into 2011. Third, most brokers rushed 1099-Bs to the printer before doing an end of January wash sale calculation (covered earlier). Fourth, most brokers report wash sales between “identical positions” (the same symbol only), whereas, taxpayers are required to report wash sales between “substantially identical positions” (such as between stocks and options). How can the IRS ask brokers to calculate wash sales according to identical positions only and taxpayers by substantially identical position? Even if brokers could get all the above right, broker-provided wash sales would still be wrong because brokers only report wash sales in one account, whereas a taxpayer must report wash sale analysis across all taxable accounts, including IRAs.

I wrote a draft blog, which I will publish soon calling for a full-scale repeal of the dumb wash sale rules. They make no sense for active traders.

Thanks Robert. You have done a great job on this issue. I don't know how you find time to post here this time of the year, but thanks.

The thought crossed my mind that these rules and the vastly increased compliance burden reflect more than just confusion and poor implementation. The government has never liked the idea of day traders, etc, and neither do the big mutual funds and pension funds. Maybe this is just a stealth campaign to force us out. I know the idea of just restricting active trading to futures and using my IRA to swing trade stocks is beginning to look attractive.

Posted by gkishot on 04-14-12 06:01 PM:

Quote from Robert A. Green:

Wash sale reporting is the biggest problem with 1099-Bs, but there are many other types of problems, too. Everything from adjusting purchases, when they should adjust proceeds to vice versa, omitting transactions, double counting transactions, handling short sales wrong, and more. It's almost a comedy of errors, but no one is laughing.

What you describe above are "potential wash sales" as I wrote about on "Brokers are only reporting potential wash sales, not final wash sales" http://www.greencompany.com/blog/index.php?postid=142

There are plenty of other problems with wash sales, too. Per my blog "IRS, why force taxpayers to reconcile securities-broker 1099-Bs to tax returns, when your rules are apples vs. oranges?" at http://www.greencompany.com/blog/index.php?postid=141

Wash sales are bound to be wrong:
When it comes to wash sales, there are a multitude of things that can and will go wrong, and that messes up cost basis and reconciliations for securities traders (unless they use Section 475 MTM and are exempt from wash sales).

First, many brokers are using back-office tax-accounting solutions that may botch wash-sale reporting, since they have not focused on it much in prior years. Second, there is the cost-basis rules transition problem mentioned earlier, with brokers omitting 2010 wash sale cost basis deferred into 2011. Third, most brokers rushed 1099-Bs to the printer before doing an end of January wash sale calculation (covered earlier). Fourth, most brokers report wash sales between “identical positions” (the same symbol only), whereas, taxpayers are required to report wash sales between “substantially identical positions” (such as between stocks and options). How can the IRS ask brokers to calculate wash sales according to identical positions only and taxpayers by substantially identical position? Even if brokers could get all the above right, broker-provided wash sales would still be wrong because brokers only report wash sales in one account, whereas a taxpayer must report wash sale analysis across all taxable accounts, including IRAs.

I wrote a draft blog, which I will publish soon calling for a full-scale repeal of the dumb wash sale rules. They make no sense for active traders.

Totally agree with you. Imagine someone closing 2 positions with realized 100k profit and realized 110k loss. Should he pay taxes on 100k realized gain and defer realizing his losses who knows for how long as if those losses are just on paper?
Insane.

Posted by heywally on 04-14-12 08:54 PM:

Quote from AAAintheBeltway:

Thanks Robert. You have done a great job on this issue. I don't know how you find time to post here this time of the year, but thanks.

The thought crossed my mind that these rules and the vastly increased compliance burden reflect more than just confusion and poor implementation. The government has never liked the idea of day traders, etc, and neither do the big mutual funds and pension funds. Maybe this is just a stealth campaign to force us out. I know the idea of just restricting active trading to futures and using my IRA to swing trade stocks is beginning to look attractive.

You could be me thinking/saying exactly the same things.

Even before this debacle, everyone should have been considering the advantages of restricting their active/swing trading to IRA's because of the tax and (lack of) accounting advantages (knock on wood).

And were the government not so huge and generally incompetent and inefficient (both largely a function of legacy and difficulty in managing that kind of size), I'd completely agree about this being an implicit strategy to weaken "day traders."

__________________
Buy weakness slowly, scale out into strength.

Posted by bidwell on 04-15-12 04:20 AM:

Quote from Robert A. Green:

Wash sale reporting is the biggest problem with 1099-Bs, but there are many other types of problems, too. Everything from adjusting purchases, when they should adjust proceeds to vice versa, omitting transactions, double counting transactions, handling short sales wrong, and more. It's almost a comedy of errors, but no one is laughing.

[...]

Wash sales are bound to be wrong:
When it comes to wash sales, there are a multitude of things that can and will go wrong, and that messes up cost basis and reconciliations for securities traders (unless they use Section 475 MTM and are exempt from wash sales).

[...]

I wrote a draft blog, which I will publish soon calling for a full-scale repeal of the dumb wash sale rules. They make no sense for active traders.

-----

[QUOTE]Quote from AAAintheBeltway:
Thanks Robert. You have done a great job on this issue.

-----
Ditto...

Given all this trouble with wash sale reporting, I'm thinking of making the Section 475, Mark-to-Market Election with my extension.

What are the main things to worry about, with regard to the IRS, when making the transition to MTM?

Posted by Robert A. Green on 04-15-12 09:03 PM:

Quote from AAAintheBeltway:

Thanks Robert. You have done a great job on this issue. I don't know how you find time to post here this time of the year, but thanks.

The thought crossed my mind that these rules and the vastly increased compliance burden reflect more than just confusion and poor implementation. The government has never liked the idea of day traders, etc, and neither do the big mutual funds and pension funds. Maybe this is just a stealth campaign to force us out. I know the idea of just restricting active trading to futures and using my IRA to swing trade stocks is beginning to look attractive.

Thanks to my partner Darren Neuschwander CPA who heads up tax preparation and our 15 CPAs, I have time to defend the tax and regulatory interests of traders year round, and to do consultations most of the day.

The IRS did not purposely cause this Form 8949 reporting mess and they still don't even realize it's a mess. Someone may get fired over it, too. The IRS and brokers should issue a recall, but they won't.

I agree with you, many securities traders will migrate to futures to avoid this mess. Odd, Chicago exchanges seem to be the beneficiary again. The current administration is from Chicago, but it's a stretch to connect those dots on this one.

Posted by Robert A. Green on 04-15-12 09:13 PM:

Quote from bidwell:

-----

[QUOTE]Quote from AAAintheBeltway:
Thanks Robert. You have done a great job on this issue.

-----
Ditto...

Given all this trouble with wash sale reporting, I'm thinking of making the Section 475, Mark-to-Market Election with my extension.

What are the main things to worry about, with regard to the IRS, when making the transition to MTM?

I am going to publish a strong blog to repeal wash sales for active traders soon after the tax deadline of 4/17. I already wrote a draft. I'll have a petition at RallyCongress to sign too. We need everyone to get behind it. It's the only good answer to the botched cost-basis reporting saga.

Section 475 MTM is good for securities, not futures. It's a gamble to elect if you have material capital loss carryovers. If you have a large capital loss carryover, and a material trading loss year-to-date 2012, elect section 475 and then form an entity for a do over. So you can generate capital gains in the entity to pass through and use up your capital loss carryover. There are lots of nuances here and I cover some of them in recent webinars, and all of them in chapter 2 on MTM in Green's 2012 Trader Tax Guide.

This upcoming 4/17 election deadline is very key for many traders. Make the right decision as best you can. Run TradeLog for 2011, then turn on section 475 for 2012, and run TradeLog for 2012. That's the info you need to make the right call for the 4/17 election. Making the wrong decisions on section 475 is the biggest tax mistake traders make.

Posted by Bob111 on 04-15-12 09:28 PM:

Quote from heywally:

You could be me thinking/saying exactly the same things.

Even before this debacle, everyone should have been considering the advantages of restricting their active/swing trading to IRA's because of the tax and (lack of) accounting advantages (knock on wood).

And were the government not so huge and generally incompetent and inefficient (both largely a function of legacy and difficulty in managing that kind of size), I'd completely agree about this being an implicit strategy to weaken "day traders."

i've been saying this for years. call me a conspiracist or whatever.
for over a decade there was no single rule been implemented that would be in favor of regular joe,who trade\invest in US stocks.
starts from decimalization,then PDT rules,dark pools,internationalization,hft whatever... . this one is just another step to kick us out of the markets..that's how it's feels like. at least to me.

Posted by Robert A. Green on 06-14-12 09:49 PM:

Video update on cost-basis reporting filing crisis. Recorded at the Traders Expo Dallas on June 6, 2012

Tax Flubs That Can Cost You Thousands -
http://www.moneyshow.com/video/vide...scode=027084%20

Released: 6/12/2012
Complex new trader tax legislation is already creating havoc among brokers, and for taxpayers, misinterpreting the rules could mean overpaying by thousands, warns Robert Green.

I also worked on a letter today being sent to the upper echelon of the IRS on this matter requesting further relief for taxpayers. It's being sent by a major accounting organization with clout.

Posted by gaj on 06-15-12 01:47 PM:

tradestation has *still* not sent out corrected 1099s. i've called them a few times, most recently two days ago - they still don't know when it's going to be completed.

Posted by zboy2854A on 06-15-12 02:59 PM:

Sorry if this is a silly question, but my head is spinning right now (and my accountant already filed my 2011 taxes without form 8949). If I have trader tax status with the IRS (which I do), was I still required to use form 8949? My accountant told me that since I have trader status it was still okay to use form 4797, which is what we did.

Posted by fhl on 06-15-12 07:57 PM:

I guess we can avoid all this by either dumping all trading stocks for a period of thirty days starting sometime around the first of december, or sometime in december. Then start daytrading stocks again after the thirty day period. Or, if you are very careful, you can trade during that time, but make sure you don't do something to enact the wash sale rule.

The other point to consider, though, is even if you do this, can we trust the broker we use to account for all this properly and not screw up what they send to the IRS about what we've done.

Your opinion on this, Robert?

Posted by zigzag on 09-19-12 03:34 AM:

Quote from Robert A. Green:

Video update on cost-basis reporting filing crisis. Recorded at the Traders Expo Dallas on June 6, 2012

Tax Flubs That Can Cost You Thousands -
http://www.moneyshow.com/video/vide...scode=027084%20

Released: 6/12/2012
Complex new trader tax legislation is already creating havoc among brokers, and for taxpayers, misinterpreting the rules could mean overpaying by thousands, warns Robert Green.

I also worked on a letter today being sent to the upper echelon of the IRS on this matter requesting further relief for taxpayers. It's being sent by a major accounting organization with clout.

Has anything come out of this letter? With the extended deadline less than a month away, what options do I have if I still don't have an accurate 1099-B?

Posted by atticus on 09-19-12 04:22 AM:

Quote from Bob111:

i've been saying this for years. call me a conspiracist or whatever.
for over a decade there was no single rule been implemented that would be in favor of regular joe,who trade\invest in US stocks.
starts from decimalization,then PDT rules,dark pools,internationalization,hft whatever... . this one is just another step to kick us out of the markets..that's how it's feels like. at least to me.

You sir, are absolutely correct.

Posted by humpee on 09-19-12 06:07 AM:

Plug this

I am a Tradelog user. My broker is Fidelity. I am wrapping up before the extension expires. In the reconciliation step Tradelog found a $184.00 difference in the sales that was nonthreatening and in the right direction. But the 8949 had an adjustment at the end, a so-called "plug-number" type B, of about $2.5M addition to the cost basis column with an offsetting $2.5M added to the gain-loss column.

I have talked to Fido and received little help so far and a refusal so far to issue a corrected 1099. Tradelog support cannot help because they say they are not CPAs, and they cannot explain the adjustment they made. CPAs are all hedging left and right and praying for the IRS to back off given the mess they made.

Robert, if you were me, and after another year of losses cannot afford to give thousands more to a CPA, what would you do? I have read all your advice: blogs, MoneyShow videos, Tradelog pointers, etc etc, and this forum. But I still do not see a way to accurately account for this Tradelog adjustment, and I do not understand why they cannot or will not explain it either.

Posted by Free Thinker on 09-19-12 02:06 PM:

Quote from zigzag:

Has anything come out of this letter? With the extended deadline less than a month away, what options do I have if I still don't have an accurate 1099-B?

send in you taxes figured to your best ability and let the irs figure it out. if they find something they dont like all they will do is send a letter asking for clarification. worst case. you have to pay them more.

__________________
http://www.youtube.com/watch?v=OPs_j1EEplI&feature=feedwll&list=WL

Posted by nkhoi on 09-19-12 02:49 PM:

Quote from Free Thinker:

send in you taxes figured to your best ability and let the irs figure it out. if they find something they dont like all they will do is send a letter asking for clarification. worst case. you have to pay them more.

that was what I did, never hear anything form IRS. I guess they are scared of paperwork too.

Posted by Bob111 on 09-19-12 03:28 PM:

Quote from nkhoi:

that was what I did, never hear anything form IRS. I guess they are scared of paperwork too.

same..throw them stack of paper with my numbers..here is my calculations..if IRS disagree-i will give them a pleasure to figure out the numbers on their own. they created this mess-let them drown in it..

Posted by Robert A. Green on 09-19-12 04:45 PM:

Quote from zigzag:

Has anything come out of this letter? With the extended deadline less than a month away, what options do I have if I still don't have an accurate 1099-B?

We issued this update.

An update note to tax preparers and traders about incorrect 1099-Bs and 2011 tax filings
http://www.greencompany.com/blog/index.php?postid=163

And, use this footnote with the return if you are using TradeLog.
Tax Return Footnote: 2011 Form 8949 and Cost-Basis Reporting Rules
http://www.greencompany.com/blog/index.php?postid=161

We haven't heard about any news from the IRS on our petition or the AICPA letter linked in the above blog.

Bottom line. It's time to file using TradeLog and reconcile in total to the last 1099-B received. The 8949 will then match the 1099-B in total and you should be okay.

Posted by Traderham on 10-15-12 03:43 AM:

F**k, D**M, ........ADD ANY EXTREMELY OFFENSIVE WORDS.

So I filed and extension and today is Sunday night October 14, 2012. Taxes are due tomorrow. I prepare my own and have been doing for years. MTM as I'm a full time trader and all proper elections were done years ago. I'm confident in my abilities to have procrastinated this long.

Just downloaded all my tax forms tonight from IB. WHAT A MESS!!!! I was expecting it to be like last year....nice, neat, and clean. I now have to download TradeLog? DAMN! I used Tradelog years ago when I was with Tradestation and it needed it. When I switched to IB, I didn't need TradeLog as IB's schedules and worksheets (4797) were perfect.

Well....this is what I get from procrastinating. Guess this is gonna be an all nighter. As soon as I saw the mess on IB's forms, I came here and found this thread. No one to blame but myself.

TradeLog software guys must be loving this new mess.

Posted by bidwell on 10-15-12 04:54 AM:

Though spot. I'm finishing up too.

This TradeLog YouTube video was helpful:
TradeLog Class: Reconciling 1099-B and Ending the Tax Year, Form 8949

The 4+min part right around the 32min mark was very helpful.

Posted by Traderham on 10-15-12 04:18 PM:

bidwell, thanks for the link. Luckily, I elected MTM years ago and don't have to file a 8949. I just need TradeLog to accurately report all my trades on 4797. I still have to use a 8949 for my futures trades (I think).

Had I known about all the changes in rules, I would have started earlier to prepare for my taxes. I blindly went into it this year presuming it's the same as last year.

I may have to file a couple of days late. These boards, specially Mr. Green's posts, have been very helpful.

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