EFPs & Tax consequences

Discussion in 'Retail Brokers' started by trazan, Jun 30, 2007.

  1. trazan


    Did anyone look into the tax implications of using EFPs?

    Lets say I've got a long term position. Could I finance that position for a period of time using an EFP and still keep its long term status? Or would it be considered a sale?
  2. rayl


    And EFP consists of two positions.... a stock position and a futures position, and both have respective tax consequences. I'm assuming you're talking about equities and SSFs, and not executing an EFP in the commodities market or some such.

    What does it mean to use an EFP long term? Did you mean holding a long or short SSF position long term? I'd imagine those are sec 1256 contracts and treated as such.
  3. trazan


    I was talking about a stock position. Lets say I own 100 shares of MSFT. To finance this position I buy an EFP, so my shares are sold and replaced by a SSF. Later on when the SSF expires I will get my 100 shares back. So my question is if this counts as a sale of the shares for tax purposes? Does it affect the holding period?
  4. rayl


    Actually your post reminded me of a section of the code I totally forgot. Sec 1259 on constructive sales. I would imagine that such an EFP would qualify as a sec 1259 constructive sale but this obviously needs a lot more research.

    Another question yet is if you start flat and go long stock/short SSF, does 1259 kick in as well making my thinking that it's 2 positions invalid.

    I best defer to the better IRC wizards out there at this point.
  5. I just posted this in another thread, but SSFs do not qualify for the preferential 60/40 tax treatment. They are taxed just like stocks. That was one of the disadvantages of SSFs from the beginning.

  6. Are your shares sold? Or do you open a short position in the stock offset by a long SSF? I think it may be the latter if you do the EFP as a unit with IB. If it's the latter then I think you have an argument that you have not sold the stock. Just speculating though...I'm not a CPA.