Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
One brokerage reclassified options on UVXY as Regulated Futures
Posted by: JReality, February 18, 2017 06:32PM
Since I've been trading options on UVXY, I've always reported these options trades on form 8949 as regular options trades.

For the past several years, brokers have been reporting it that way on their 1099s as well. However, this year, one brokerage (TD) issued a CORRECTED 2016 1099 a couple weeks ago reclassifying all the UVXY options trades as "Regulated Futures Contracts", so, for that broker, only one number is reported for all those trades, which is my overall P/L, and that carries to the form regarding Sec. 1256 contracts, and there's a tax 60/40 tax advantage.

However, 2 other brokers have since released their 1099 (first release) and they both are doing what they've always did which is report options on UVXY as ordinary capital gains. While it would be nice if they too issued corrected 1099s reclassifying all the UVXY options as 1256, I'm not expecting it to actually happen.

Seems strange that 1 broker is now reporting UVXY options as 1256 and the other 2 have continued to report them as regular capital gains/losses.

Is it okay to report everything the way each brokerage reported it, even though there is an inconsistency between the way TD reported it vs. the other to brokers?

I don't want to argue with the brokerages, since I don't know who is "right" and who is "wrong" Maybe it's a gray area?

Thanks,

J.


Re: One brokerage reclassified options on UVXY as Regulated Futures
Posted by: rexarus, March 17, 2017 04:42PM
Hi J,

I am encountering the very same issue as you with regard to UVXY. I trade the UVXY options exclusively for the specific purpose of getting the Section 1256 60/40 tax treatment, and I am aware that these trades are qualified IRS Section 1256 trades for IRS tax reporting.

I have been trading at Interactive Brokers, but before I traded at IB, I traded at E*Trade and TD Ameritrade. The trouble is that IB (unlike E*Trade and TD Ameritrade), reports the trades incorrectly as regular stock option trades. I have talked to the IB tax department, and they have no intention of changing their reporting despite the fact that they may be the only major broker left that is reporting incorrectly. Since they insist on reporting all the UVXY option trades as regular stock option trades, that means the IRS gets an erroneous 1099-B. If the tax return is filed using their report, I end up paying 100% short term capital gains instead of the 60/40 Long term to short term split I am entitled to get as a trader of this UVXY product.

My question is to anyone that can help me out here. What can one do about this misreporting when he or she files their tax return to the IRS? Unless I switch back to E*Trade or TD Ameritrade for trading to bypass the issue, IB is going to cause me to have a tax return that is more likely to be audited. If I file the return with the UVXY trades listed as Section 1256 contracts instead of stock options, the tax return will mismatch with the way IB reported the trades. I don't want to trigger an audit by sending in a mismatch, so what do I do if the broker is reporting this UVXY incorrectly as IB is doing? I may have to switch back to E*Trade or TD Ameritrade, but is there any other option?

Thanks,

Todd

Re: One brokerage reclassified options on UVXY as Regulated Futures
Posted by: rexarus, March 17, 2017 04:42PM
accidental duplicate post deleted...

Re: One brokerage reclassified options on UVXY as Regulated Futures
Posted by: Art, March 17, 2017 07:10PM
Taxpayers send in mismatches every day of the week, and the procedure is too new to know how this affects the likelihood of examination.

IRS has given you a documented procedure for declaring adjustments to broker-reported information, and if I were in your situation, I would do just that.



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