Also, keep in mind that another broker treated all my trades in that particular ETF for 2011 as non-covered trades.
Thank you for the covered and non-covered definition and link.
I am a bit more clear about the meaning of your problem: "....adjust cost basis of covered shares to account for wash sales of non-covered shares." You are referring to an earlier year AND the 2011 year.
I don't know if this is helpful for you. Don't be mis-directed by the label given to the thread, but rather a statement Mr Green gives inside the short thread that seems (to me) addressing the notion you are considering in your second possible solution in your initial post on this thread: He states "We don't like the idea of filing a tax return with a material reconciliation or "plug" number. That's why we suggest filing extensions to have more time to investigate the form 8949 differences. More time to request and hopefully get corrected 1099-Bs, and hopefully the IRS will provide more guidance about this wide-scale tax reporting problem, too."
Now that I just stated what I did, I see you posted below him and must be familiar with his statement. So I guess his statement is irrelevant to you. Still not the same thing, I suspect, but in previous years (so I am getting away from the new 2011 year treatment), I have had to deal with carry over into a new calendar year open trades of pairs I had going. I had to take into consideration "purchases" and "proceeds" figures that were provided that included opening my pair one year and closing it the next. Now that I think about it, I had to do the same with non-pair trades, i.e. straight Longs and straight Shorts. My "solution" appeared to work out handily, and I haven't been called on it yet by the IRS which means I don't know if they saw it and approved, or didn't see it at all.
The selected verbiage I quoted from you is a news flash to me. Your introduction to this thread was hammering a clearing firm, it appeared to me, not a brokerage. Did you mis-speak in your last post and mean the clearing firm ?
The link you provided in your last post DOES refer to instructions a customer provides his brokerage. Does that mean had I known in 2010 about this new legislation to go into effect 2011, I could have given instructions to my brokerage to match my gains and losses by matching the Long leg with the Short leg of my pairs trades ?
My request to have the trades classified as non-covered trades was denied. They say that the since the exchange treats the ETF as equity stock, the trades need to be reported as covered in 2011, although they have no explanation as to why a different broker (begins with an I) classified trades in the same exact ETF as non-covered.
1) Simply, do not take the wash sale(s) on the non-covered trades, since the 1099-B failed to upwardly adjust the cost basis of the covered trades involving replacement shares that caused the wash sale for the non-covered trades. If ever questioned about this, I would have to explain why no wash sale was taken.
2) Take the wash sale(s) on the non-covered trades but, immediately, on my worksheet, I could then make two simple "adjustments to reconcile BoxA error" canceling out those wash sales along with an explanation that I am making those adjustments since the 1099B failed to upwardly adjust the cost basis for replacement covered shares to account for the wash-sales of non-covered shares. Also, I could mention that the clearing agent has stated they have no ability to do so. Also, I could mention that I am making the correction to BoxB rather than BoxA, because it is impractical to adjust on BoxA, since that would result in a chain of additional adjustments to 40 additional trades. I could also mention that the position was closed before the end of year an not bought back until after 30 days, so the end result is the same if I make the adjustment on BoxB rather than BoxA, and the adustment is much more practical.
3) Attempt to correct the errors directly for the BoxA trades that caused the wash sales for the BoxB trades, but that would then require a chain of corrections to 40 BoxA trades since there would 40 additional wash sales and additional cost basis adjustments. This is impractical if not impossible, given that the sizes of the lots vary.