Clearing firm won't adjust basis of covered shares to account for non-covered wash sa

Discussion in 'Retail Brokers' started by Jreality, Aug 30, 2012.

  1. Jreality


    Clearing firm (name began with a P, now begins with an A) won't adjust cost basis of covered shares to account for wash sales of non-covered shares.

    I've been trying to get my 1099-B corrected since April, and was just ultimately told by my broker that the clearing firm (used to being with a P, but now beings with an A) is unable to adjust the basis of covered shares to account for wash sales of non-covered shares. I'm told I may have to utililize form 8949 to report the basis of what I "feel is correct."

    To me this is just laziness on the clearing agent's part. After all, they do have a record of all my past trades, but say they are unable to adjust the cost basis of covered shares to account for wash sales of non-covered shares.

    Do I really have to adjust every incorrect covered trade on 8949?.... or could I do one of the following instead? :

    1) Just NOT take the last NON-covered wash sale(s) on Box B of 8949 (instead of adjusting all the Box A covered trades) and hope nobody notices that I didn't take those wash sale(s) (and why should I have to, if the clearing firm didn't adjust the covered trade basis as a result of those wash sale(s)?)


    2) DO take the last non-covered wash sale(s) but include a special "error adjustment" afterward, along with a "see explanation" and then provide an explanation indicating that the 1099-B issuer failed to adjust the cost basis of covered shares to non-covered shares, and therefore I am making a single adjustment for the "lost wash sale adjustments" rather than adjust every Box A trade.

    The point of going with either 1) or 2) instead of adjusting the basis of all the covered trades, would be to avoid red flags.

    Let me know what you think.


  2. Jreality


    P.S. No matter what I decide to do, I plan on including, with my tax return, a copy of an email sent from my broker which shows the clearing Agent's response indicating that they are unable to adjust covered shares to account for wash sales of non-covered shares, etc.

  3. Jreality


    Okay, well, given that this securitiy is an ETF, and it is NOT a requirement that this particular ETF be classified as a covered transaction for trades made in 2011, then I am going to request that they re-issue me a corrected 1099-B with all my trades in that ETF be reclassified as non-covered transactions. Keep in mind, I traded this same ETF with a different broker, and the other broker classified all my trades in that ETF as non-covered.

    Do you think they will cooperate?
  4. deucy28


    I have the same clearing firm. I came back from overseas in April to find this firm treated some of my trades as wash sales in spite of it having a few years of my doing trades the same way without calling me out for wash sales. To be candid, I have not examined the specific trades and detailed myself yet to get down into the weeds to see exactly what and why some trades are being classified as ws. It may be exactly your issue. (I have been overwhelmed with other matters. Sorry. It lays as a heavy hanging over my head.)

    (Every trade I made in 2011 was a pair trade. The nature of pair trades (in its simplest iteration) is one leg long and one leg short, and one leg will ALWAYS have a "loss." Hell, if I can't apply the "loss leg" as a loss to offset my gain leg on occasions where I traded the same security within 30 days, I am totally screwed.) I called my broker and asked what the hell is going on ? A member there told me lots of traders have been in upheaval about this, which didn't help me. He told me I just may have to, for next year, file with IRS to re-classify myself, etc. That doesn't help me now, and I may not wish to "reclassify" myself.)

    OK...enough whining by me. (This is obviously a hot topic for me and I suspect others, too.) I have questions for you. Please forgive what may be ignorance by me. Can you please clarify ?

    (1) Do you mean ? .... : ..... You shorted then you covered the short AND you did the same securities within 30 days ? I have ambiguity in my mind about a couple of possible scenarios you are referring too. Sorry, but your specifics are important to me in the event I find the same dynamics going on with my trades.

    (2) I have not examined the new form 8949. Again, sorry. You state you may use the following as a premise to make your request to the clearing firm: "that this given securitiy is an ETF, and it is NOT a requirement that this particular ETF be classified as a covered transaction for trades made in 2011...." Are you implying the IRS publication you are using identifies ALL things it calls a security ? (and ETF's was not so identified ?)

    I want to stay close to you on this one whether your specifics are my specifics for being dinged on trades deemed as ws.

    Importantly, too, is my possible, future prevention of doing my style of trading, which would be HUGE to me.

    FWIW... doing a little research earlier this year, I discovered was trying to get its arms around problem 1099's issued en mass to traders that due to the new reporting requirement (form 8949, I suppose), there have been lots of errors on 1099's. The boss of greenCompany posted on ET it is working diligently to correct what it perceives as a gross mis-justice. (I hope I am characterizing that properly.) I have a big microsoft Word doc that I collected info on botched 1099's that appear to be related to wash sales in part or in whole. PM me with your e-address and I will send it to you. Check out on ET Forums > Direct-Access Brokers > Retail Firms for Mr. Green's thread and an essay he wrote and posted in March at his firm's web site. He may have an update since I first saw it this summer :
  5. deucy28


    OK.... I've done a little more searching using ET's search engine to find posts related to Wash AND Sale, and I have found other threads you may be familiar with. (In fact you posted on one early this year.) I have not gotten deep into these threads, but enough so I begin to understand "covered' and "uncovered." Sorry to have asked the pesky questions. I hope other resources I referred to help somewhat.

    I will definitely have to get down in the weeds with my material that was sent to me. This looks like one big [profanity I would like to put here.]
  6. Jreality


    Covered means the cost basis has to be reported on the 1099-B, and non-covered means it doesn't have to be reported there.

    On an IRS page it says the following:

    "7. When do these reporting requirements go into effect?
    For stock in a corporation, the applicable date is January 1, 2011 except for shares of a mutual fund and stock held in a dividend reinvestment plan (DRP), in which case the applicable date is January 1, 2012. For any other specified security, the applicable date is January 1, 2013 or a later date determined by the Secretary of the Treasury. A covered security acquired in 2011 is not covered if it is transferred into a DRP in 2011, but remains covered if transferred into a DRP after 2011."

    Also, keep in mind that another broker treated all my trades in that particular ETF for 2011 as non-covered trades.

  7. deucy28


    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."

    Forums / Direct-Access Brokers / Retail Firms / Tradelog and 8949

    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 ?
  8. Jreality


    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.

  9. Jreality


    It seems to my my only options are:

    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.

    What do you recommend I do?