If your brokerage decided to not report Wash Sales…what do you do?

Home Fairmark Forum Taxation of Investments If your brokerage decided to not report Wash Sales…what do you do?

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  • #13279
    TaxationRobbers
    Participant

    This is insanity. My online brokerage suddenly sends me on Dec. 17 the following:

    “We are writing to let you know about an important change regarding E*TRADE tax reporting for short options that may affect the account(s) you hold with us.

    Beginning this year (tax year 2020), we are implementing a change to remove wash sale reporting on short options. All tax reporting for short options will be completed using the original sale price and subsequent closing transactions, expirations, or resulting assignments without making any adjustments for wash sales.

    Around December 19, 2020 this reporting change will be applied retroactively for all transactions in tax year 2020 and may result in changes to your portfolio information (e.g., updated purchase dates and prices to reflect the original trades) and your taxable gains and losses. To understand how this might affect your specific tax situation, we encourage you to consult a tax advisor.
    _________________
    I’m not a complex calculating computer, and that’s what it requires to calculate multiple Wash Sales, and this wretched brokerage is pulling this on its clients, retroactive for all of 2020.

    So, tell me what gives them the right to just say, “We’re not reporting Wash Sales any longer.” This should be illegal, and what is the way to deal with something like this?

    #13408
    Kaye Thomas
    Moderator

    The company must have obtained an opinion that this particular item is not required to be reported, so they are not acting illegally. At the same time, I believe they’re allowed to provide this information voluntarily. My guess is that they determined there is some unresolved (and unresolvable) issue that makes it impossible to say with certainty how the wash sale rule applies to these instruments, and wanted to avoid the legal exposure associated with providing one answer when there’s a possibility the IRS will take a different view.

    #14120
    TaxationRobbers
    Participant

    Kaye, I discovered that if a brokerage decides they are no longer providing wash sales, this is to our advantage, as their 1099B will not have wash sales, and the IRS simply matches up what the 1099B provides. One small consolation in the jungle of getting every penny out of us they can.

    #14125
    Kaye Thomas
    Moderator

    True in practice if not in theory. You’re legally required to report wash sales even if the broker failed to do so. Yet IRS audit activity in this area is nonexistent as far as I can tell, so we’re effectively on the honor system. Anyway, chances are that wash sale reporting on these types of transactions would have little or no effect on the amount you owe in taxes. If that’s true, working out how to report wash sales would just be goosing ghosts.

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