7533. What is a “wash sale”?Nuco Employeercline202014-06-26T16:43:00Z2014-06-26T16:43:00Z47904503Case Western Reserve University3710528314Site Map/Investments/Stocks/Sale or Exchange/Wash SalesTaxFactsDefaultArticle2006-01-04T00:00:00Z120601029-00-tf2.xml1029.00;#1972;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2What is a “wash sale”?
17700.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T22:25:47Z7533. What is a “wash sale”?A “wash sale” is a sale or other disposition of stock or securities in which the seller, within a 61-day period (beginning 30 days before and ending 30 days after the date of such sale or disposition), replaces the stock or securities by acquiring (by way of a purchase or an exchange on which the full gain or loss is recognized for tax purposes), or entering a contract or option to acquire, substantially identical stock or securities.IRC Sec. 1091(a); Treas. Reg. §1.1091-1(a). Typically, the objective of a wash sale – were it not subject to the special rules of IRC Section 1091(a) explained in Q 7534 – would be for the taxpayer to take advantage of the deduction for capital losses, while maintaining the taxpayer’s position in the corporation by purchasing substantially identical stock or securities. From a tax standpoint, it is as if nothing has happened, and IRC Section 1091(a) treats the sale as a non-event.The replacement of stock or securities by way of gift, inheritance, or tax-free exchange will not result in a wash sale.See Treas. Reg. §1.1091-1(f). For the definition of “substantially identical stock or securities,” see Q 7535. Except as provided in regulations, the term “stock or securities” includes “contracts or options to acquire or sell stock or securities.” For an explanation, see Q 7552.If a taxpayer sells stock or securities for a loss, acquiring substantially identical stock or securities within a traditional IRA or Roth IRA within the 61-day period may constitute a wash sale.Rev. Rul. 2008-5, 2008-1 CB 271.Where there is no substantial likelihood that a put option (see Q 7554) will not be exercised, its sale will be treated as a contract to acquire the stock.Rev. Rul. 85-87, 1985-1 CB 268.For purposes of the wash sale rules, a stock warrant is considered to be an option to acquire stock of the issuing corporation.Rev. Rul. 56-406, 1956-2 CB 523. Preferred stock that is convertible into common stock of the same corporation without restriction is considered to be an option to acquire such common stock.Rev. Rul. 77-201, 1977-1 CB 250.A seller of stock who agrees at the time of the sale to repurchase that same stock after a minimum of 30 days has entered into a contract, and the sale is a wash sale. It is irrelevant whether the contract is enforceable under state law.Est. of Estroff v. Comm., TC Memo 1983-666.A bona fide sale of a portion of the shares of stock purchased in a single lot for purposes of reducing the purchaser’s holdings in that stock is not a wash sale even though the sale occurs within 30 days after the lot was acquired.Rev. Rul. 56-602, 1956-2 CB 527.A disposition of stock or securities may not be taken out of the definition of a “wash sale” by merely postponing delivery until more than 30 days after the date the shares of stock or securities are replaced.Rev. Rul. 59-418, 1959-2 CB 184. A purchase of substantially identical stock or securities during the 61-day period will trigger the wash sale rules even though the purchase is made on margin or pursuant to subscription rights acquired prior to the beginning of the 61-day period.See respectively, Rev. Rul. 71-316, 1971-2 CB 311; Rev. Rul. 71-520, 1971-2 CB 311.Where a taxpayer received 10 shares of stock as a bonus from his employer, sold them at a loss, and then within the 61-day period received another bonus of 10 shares of the same stock, the Service ruled that a wash sale had occurred; the tax basis of shares received as a bonus is their fair market value at the time of payment.Rev. Rul. 73-329, 1973-2 CB 202. It appears that the sale or purchase of “when-issued” securities is deemed to occur on the date the final settlement is made.See I.T. 3858, 1947-2 CB 71.An employee who, under an employer-employee restricted stock option plan, was granted an option to purchase stock of his or her employer was deemed for purposes of the wash sale rules to have entered into an option to acquire that stock on the date the option was granted; the stock purchased pursuant to such option was deemed to have been acquired on the date the certificates were issued.Rev. Rul. 56-452, 1956-2 CB 525. See Q 7542 to Q 7548 for the tax treatment of incentive stock options.Securities futures contracts. “The wash sale rules apply to any loss from the sale, exchange, or termination of a securities futures contract (other than a dealer securities futures contract) if within a period beginning 30 days before the date of such sale, exchange, or termination and ending 30 days after such date: (1) stock that is substantially identical to the stock to which the contract relates is sold; (2) a short sale of substantially identical stock is entered into; or (3) another securities futures contract to sell substantially identical stock is entered into.”See IRC Sec. 1091(e); Joint Committee on Taxation, Technical Explanation of the Job Creation and Worker Assistance Act of 2002 (JCX-12-02).The taxation of a wash sale is explained in Q 7534. For the application of the wash sale rules in the context of a short sale, see Q 7524.