February 20, 2019 at 8:07 am #2369
I am in a slightly peculiar situation. I vest RSUs every month, on the 15th, which is on a sell-to-cover schedule, so that part of the vested stock is sold for tax purposes and the money is withheld. Now, this monthly selling to cover for taxes almost always generated losses in 2018, and these losses were reported on my 1099-B (from Charles Schwab). There was, however, no wash sale adjustments reported on that form for any of the losses. I have a few questions regarding this scenario:
1. Do these losses lead to wash-sales, because I always vest another round of shares within 30 days?
2. The shares sometimes don’t get sold on the day they vest. For example, my July 15 shares were sold on July 16 (from my account transaction history page). However, my 1099-B always notes down the 15th of the month as the date the shares were acquired and sold/disposed, for all the months. Which date do I take into account when determining wash sale windows? Is it the date reported on the 1099-B (July 15 – in which case a new batch of stocks vesting on Aug 15 won’t lead to a wash sale) or is it the date the stocks were actually sold (July 16 – in which case it would)?
ThanksFebruary 20, 2019 at 5:30 pm #2378
The wash sale rule applies when stock is acquired “by purchase or by an exchange on which the entire amount of gain or loss was recognized by law.” Your stock is acquired as compensation rather than by purchase, so the wash sale rule doesn’t apply.
I should note that there’s an old ruling in which the IRS says they think the wash sale rule does apply in this situation. That ruling is merely an opinion that you are free to ignore, and this is a case where it clearly should be ignored. It is contrary to the plain language of the statute and to the best of my knowledge has never been applied to anyone.February 21, 2019 at 2:25 am #2381
Thank you so much for the clarification. I have a follow-up question which relates to the second example provided by IRS here: https://taxmap.irs.gov/taxmap/pubs/p550-026.htm#TXMP212cbd13 (reproduced below)
You are an employee of a corporation with an incentive pay plan. Under this plan, you are given 10 shares of the corporation’s stock as a bonus award. You include the fair market value of the stock in your gross income as additional pay. You later sell these shares at a loss. If you receive another bonus award of substantially identical stock within 30 days of the sale, you cannot deduct your loss on the sale.
Does this bonus not count as ‘compensation’ because it’s a one-time award? Or is it a wash sale because you personally sold the shares instead of them getting automatically sold for taxes?
Also, does this mean if I sold shares with a loss outside the automatic sell-to-cover schedule, it would be a wash sale, e.g. I vested 70 stocks on June 15, sold 50 of them at a loss on June 30 and vested the next batch on July 15?
Thanks a lot!February 21, 2019 at 4:09 am #2382
This language in Pub 550 is based on the old ruling I mentioned. I’m not sure whether this is a case where the language remains in the pub because someone at the IRS still believes the ruling makes sense, or is it there because no one has thought about the issue in the time since it was inserted many years ago. All I can say is that in my opinion the ruling, and the example you quote from the pub (which is based on the ruling), are contrary to the clear language of the law and can be ignored.February 21, 2019 at 5:02 am #2383
Understood. Thanks!February 21, 2019 at 6:51 am #2384sselmParticipant
Does the same logic apply to shares acquired as compensation through an ESPP plan?February 21, 2019 at 9:58 am #2385
Shares acquired through an ESPP plan include an element of compensation, but they are acquired through purchase, so they trigger the wash sale rule if the purchase occurs within 30 days before or after a sale at a loss.
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