Two questions regarding K-1's on ETF's--- 1)If a daytrader buys an ETF such as the SCO that issues a K-1, would the daytrader receive a K-1 since he/she was never holding the ETF at the close of business. 2)What about if the daytrader or any trader goes short on such an ETF, such as the USO etc...? He/she wouldn't own the ETF since it is a short sale so would there be a K-1 issued for short sales? Thanks!
The couple times I've only been short in a year, I've received a K-1 that had zeros in every box. I assume the same would happen if you only went long intraday.
I think it’s based on EOD holdings, but I’m not sure. However, there’s an easy way to find out. Before the end of the year, buy and sell a few shares of the one or two stocks your considerating intraday and in 3 months you’ll have a definite answer. And please report back what you find out!
I looked back over my records from last year and my previous post was a bit off. There was one fund that I shorted overnight and was never long. I didn't receive a K-1. For another fund, I went long intraday, ended the day short, and held that for a week. I received a K-1 that had zeros in all the boxes except for offsetting amounts in capital contributed and withdrawn. They also included an ownership schedule that listed my long intraday trades but not the overnight short. It seems the moral is that shorts aren't reported, while intraday longs are reported but probably don't matter. I think individual funds have some leeway over how they allocate income on K-1s. The prospectus for DBC states on page 81 that they only consider holdings at the end of the month: "In general, the Fund’s taxable income and losses will be determined monthly and will be apportioned among the Shareholders in proportion to the number of Shares owned by each of them as of the close of the last trading day of the preceding month." However, on the next page it suggests the IRS could challenge that, so go figure: "The Code and applicable Treasury Regulations generally require that items of partnership income and deductions be allocated between transferors and transferees of partnership interests on a daily basis...The Code and Treasury Regulations do not contemplate monthly allocation or revaluation conventions"
Thanks for replies. I called Proshares and I was told that no K-1's would be issued if I only shorted a fund. If I was long for only daytrades, I might get a K-1 as it would depend on whether my broker reported the long. Proshares only reports what the brokers give them.
This might be true for Proshares, but it is not true for all K-1s. Most K-1 providers just delete short entries automatically from their records. Some keep them and if you are ever short overnight, they barf and tell you that the K-1 is in an erroneous state and you have to correct the ownership schedule. Others keep them and automatically shift the dates around so that you are never short overnight. The moral of the story is that if you are short overnight, then it seems as if the K-1 providers treat that as being flat for tax purposes. Also, your holdings only matter overnight in terms of getting non-zero values on a K-1. If you are a daytrader, you might receive a K-1 but there will never be any important information on it (i.e., all the boxes will be zeros). At least that has been my experience.