"Substantially Identical" & 1099-B

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"Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 5:44 pm

In 2012 I sold mutual fund shares twice, so I've received my Vanguard 1099-B.

Box 5 is "Wash sale loss disallowed." The note on the back says:
Box 5. Shows the amount of nondeductible loss in a wash sale transaction. For details on wash sales, see the Schedule D (form 1040) instructions and Pub. 550.

I looked at both but remained unelightened, and even called Vanguard. The rep had no specific information on how they determine a wash sale.

However: If the IRS has outsourced determining wash sales to brokerages and mutual fund firms, that must mean there are specific guidelines now on what counts as substantially identical. Otherwise, how could a firm detect it?

Are any Bogleheads more successful than I in finding details?

Anyone have any thoughts?

PJW
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Re: "Substantially Identical" & 1099-B

Postby livesoft » Sat Jan 26, 2013 5:50 pm

Without giving us the details of ticker symbols, dates acquired and dates sold, I would guess that most people thoughts are constrained to "Not enough details."
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: "Substantially Identical" & 1099-B

Postby Sidney » Sat Jan 26, 2013 5:54 pm

Right, we need to know exactly when you bought (including dividend reinvestment) and sold this fund. I don't think they can detect anything other than a wash sale of the very same security.
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Re: "Substantially Identical" & 1099-B

Postby Rainier » Sat Jan 26, 2013 5:58 pm

Sidney wrote:Right, we need to know exactly when you bought (including dividend reinvestment) and sold this fund. I don't think they can detect anything other than a wash sale of the very same security.


Agreed, they don't make judgments. Only a wash on their system for same security.
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 6:00 pm

livesoft wrote:Without giving us the details of ticker symbols, dates acquired and dates sold, I would guess that most people thoughts are constrained to "Not enough details."

Thanks livesoft.

I'm not asking anybody to explain my own 1099-B (that would be Help with Personal Investments, not Theory, News and General). In fact, my form shows "0.00" in box 5, as well it should because I bought nothing (in any account) in any way similar, let alone substantially identical, to what I sold in taxable.

I'm suggesting that the often debated topic here, regarding what counts as substantially identical with respect to the wash sale rule, clearly must have been determined now that the law demands, and the IRS enforces, reports of wash sales by financial firms.

I think the key question, which I was not able to get an answer to from the Vanguard rep, is "are there any situations in which the purchase of another fund (mutual or ETF) that is not simply a different share class for the same underlying fund constitutes a wash sale?"

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Re: "Substantially Identical" & 1099-B

Postby Wagnerjb » Sat Jan 26, 2013 6:05 pm

Phineas J. Whoopee wrote:I think the key question, which I was not able to get an answer to from the Vanguard rep, is "are there any situations in which the purchase of another fund (mutual or ETF) that is not simply a different share class for the same underlying fund constitutes a wash sale?"

PJW


I agree with Rainier, that Vanguard will only flag a "wash sale" if the mutual funds are the same. In my opinion, you can have a wash sale with two different mutual funds, but Vanguard will almost certainly not be making that call for you. You need to make that assessment yourself.

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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 6:07 pm

Rainier wrote:
Sidney wrote:Right, we need to know exactly when you bought (including dividend reinvestment) and sold this fund. I don't think they can detect anything other than a wash sale of the very same security.


Agreed, they don't make judgments. Only a wash on their system for same security.

Thanks Rainier,

Do you mean that would be the case even if I had sold VFINX, Vanguard S&P 500 Index Fund Investor Shares in my taxable account, and within the wash sale time window bought VINIX, Vanguard Institutional Index Fund in my Vanguard-administered 401(k) (as it happens I do not have such an account)?

I haven't done that. Let me emphasize again I am not asking anybody to explain my own taxes to me. I am suggesting the substantially identical question must have been resolved, and asking if anybody has had any more success than I in finding details.

PJW
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Re: "Substantially Identical" & 1099-B

Postby Rainier » Sat Jan 26, 2013 6:11 pm

Not sure about that, I wouldn't want to fund out. When you create the wash in the 401k you never get utilize it.

Vanguard should be able to answer that.

Otherwise vanguard won't give tax advice on something the IRS will not even define.
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 6:16 pm

Thanks Rainier.

Rainier wrote:Not sure about that, I wouldn't want to fund out. When you create the wash in the 401k you never get utilize it.

Absolutely a misunderstanding. If one sells a security at a loss in taxable, and in a 30 day prior to 30 day later time window replaces it in any account, including a 401(k), the wash sale rule is triggered.

Rainier wrote:Vanguard should be able to answer that.

I would have thought so, which is why I phoned them. They couldn't. I pointed that out in my OP.

Rainier wrote:Otherwise vanguard won't give tax advice on something the IRS will not even define.

My point is Vanguard is reporting it, must be required by law to report it, therefore the Congress or its agent the IRS must have defined it.

I'm asking if anybody has had any more success than I in obtaining details.

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Re: "Substantially Identical" & 1099-B

Postby sscritic » Sat Jan 26, 2013 6:36 pm

I read differently.

When you buy and sell the same fund or different share classes of the same fund and Vanguard knows about it,* they will flag it. When Vanguard doesn't flag a wash sale, it doesn't mean it isn't a wash sale, it just means that it does not meet Vanguard's definition of a wash sale.

There is no need for the definition to be settled for Vanguard to know that VTSAX is identical to VTSAX or that VTSAX is identical to VTSMX. Vanguard will flag what they choose to flag; that they don't flag a wash sale doesn't mean it isn't a wash sale. Vanguard doesn't do your taxes; you do. That fact has not changed over the years. They are required to flag what they know to be a wash sale. If they aren't sure, they can't be required to report what they aren't sure of as if they were. There is no box that says "this might be a wash sale" so they can't check it.

* If you have an IRA at Vanguard and sell in taxable and buy in the IRA, Vanguard might not "know it" and might not flag it.
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Re: "Substantially Identical" & 1099-B

Postby HueyLD » Sat Jan 26, 2013 6:57 pm

The wash sale box started to show up on year 2011 form 1099-B due to the new cost basis reporting requirement. It requires financial institutions to report wash sales only to the extent that they can identify such transactions.

I saw numbers in the wash sale box last year in a couple of clients’ tax returns and both were due to sales and purchases of identical securities held in the same brokerage account. I don’t think any brokerage can decide if a wash sale occurs if such transactions do not take place within the same brokerage account.

Here are the instructions for the 1099-B Box 5”

"Report any loss disallowed under section 1091 only if both the sale and purchase transactions occur in the same account with respect to covered securities with the same CUSIP number. You are permitted, but are not required, to report in box 5 all loss disallowed under section 1091. For example, you may report a disallowed loss even though a security is sold in one account and repurchased in a different account. Increase the adjusted basis of the acquired securities by the amount of the disallowed loss reported in box 5.

You also do not have to apply the wash sale rules if:

(1) The purchased security is transferred to another account before the wash sale,
(2) The purchased security was purchased in another account and later transferred into the account from which securities were sold,
(3) The securities are treated as held in separate accounts.
Etc."
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Re: "Substantially Identical" & 1099-B

Postby sscritic » Sat Jan 26, 2013 7:03 pm

Oh man, that's not fair. You read the instructions. We like to make stuff up, so reading the instructions is a bummer, dude. :)
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 7:08 pm

sscritic wrote:I read differently.

Hi sscritic. I respect your well-demonstrated reading ability, but I think in this instance you must be incorrect.

sscritic wrote:When you buy and sell the same fund or different share classes of the same fund and Vanguard knows about it,* they will flag it.

Sure (including the footnote).
sscritic wrote:When Vanguard doesn't flag a wash sale, it doesn't mean it isn't a wash sale, it just means that it does not meet Vanguard's definition of a wash sale.

That part's a bit more difficult. Of course I could have accounts at multiple firms, which Vanguard wouldn't know about. On the other hand, I'm not sure Vanguard gets to decide what a wash sale is, any more than they get to decide what a capital loss or gain is.

sscritic wrote:There is no need for the definition to be settled for Vanguard to know that VTSAX is identical to VTSAX or that VTSAX is identical to VTSMX.

Yes, of course.
sscritic wrote:Vanguard will flag what they choose to flag;

There's the heart of our disagreement. I don't think Vanguard defines a wash sale any more than it defines taxable versus tax-deferred accounts. I don't think they get to introduce interpretations of the law for themselves. I can't prove that. I had hoped to find out when I phoned them earlier today, but as I've said, although I spoke with them my attempt was unsuccessful. I don't think Vanguard has opted to create a Box 5, and I don't think they've worked out its definition. If I'm wrong I'd love to see the evidence. Before anybody complains, please note again, I attempted to obtain evidence myself before posting.

sscritic wrote:that they don't flag a wash sale doesn't mean it isn't a wash sale. Vanguard doesn't do your taxes; you do. That fact has not changed over the years.

Totally agreed.
sscritic wrote:They are required to flag what they know to be a wash sale.

Let me attempt to express myself clearly (which doesn't seem to be going very well today). How do they know? If you have specific evidence regarding how they are to report, please present it. If not, you have nothing more than I do. One Boglehead's speculation is as good as another's. I'm attempting to find out what's true, not what somebody on a Saturday afternoon thinks should be true. I already did that part myself without posting.

sscritic wrote:If they aren't sure, they can't be required to report what they aren't sure of as if they were. There is no box that says "this might be a wash sale" so they can't check it.

Of course not, and as I've already, what's the right term, not conceded but stated forthrightly, they can't know about any other accounts one has.

The question is not, "under what circumstances do they not report a wash sale." The question is quite different: "under what circumstances do they" and furthermore, since the question has come up, "under what legal compulsion are they?"

sscritic wrote:* If you have an IRA at Vanguard and sell in taxable and buy in the IRA, Vanguard might not "know it" and might not flag it.

Accepted earlier under the "what if I have accounts at multiple institutions" rubric.

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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 7:13 pm

HueyLD wrote:The wash sale box started to show up on year 2011 form 1099-B due to the new cost basis reporting requirement. It requires financial institutions to report wash sales only to the extent that they can identify such transactions.

I saw numbers in the wash sale box last year in a couple of clients’ tax returns and both were due to sales and purchases of identical securities held in the same brokerage account. I don’t think any brokerage can decide if a wash sale occurs if such transactions do not take place within the same brokerage account.

Here are the instructions for the 1099-B Box 5”

[i]"Report any loss disallowed under section 1091 only if both the sale and purchase transactions occur in the same account with respect to covered securities with the same CUSIP number.
...

Thanks HueyLD, that's extremely helpful.
I think perhaps tomorrow I'll call Vanguard again and ask them to confirm that a wash sale occurs if and only if one sells at a loss and, within the forward and backward period, buys replacement shares that have the same CUSIP number.

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Re: "Substantially Identical" & 1099-B

Postby sscritic » Sat Jan 26, 2013 7:15 pm

Phineas J. Whoopee wrote:
sscritic wrote:They are required to flag what they know to be a wash sale.

Let me attempt to express myself clearly (which doesn't seem to be going very well today). How do they know?
...
The question is not, "under what circumstances do they not report a wash sale." The question is quite different: "under what circumstances do they" and furthermore, since the question has come up, "under what legal compulsion are they?"

Forgetting that HueyLD has already provided the answer, my answer is that they know that VTSAX is identical to VTSAX and they will use that to report a wash sale if you buy and sell VTSAX within the window of opportunity. There is no need for interpreting the word substantially if the funds are "in every respect" identical.
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 7:20 pm

sscritic wrote:
Phineas J. Whoopee wrote:
sscritic wrote:They are required to flag what they know to be a wash sale.

Let me attempt to express myself clearly (which doesn't seem to be going very well today). How do they know?
...
The question is not, "under what circumstances do they not report a wash sale." The question is quite different: "under what circumstances do they" and furthermore, since the question has come up, "under what legal compulsion are they?"

Forgetting that HueyLD has already provided the answer, my answer is that they know that VTSAX is identical to VTSAX and they will use that to report a wash sale if you buy and sell VTSAX within the window of opportunity. There is no need for interpreting the word substantially if the funds are "in every respect" identical.

And forgetting the same thing you propose forgetting, I said as much explicitly in my response.

Phineas J. Whoopee wrote:
sscritic wrote:There is no need for the definition to be settled for Vanguard to know that VTSAX is identical to VTSAX or that VTSAX is identical to VTSMX.

Yes, of course.


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Re: "Substantially Identical" & 1099-B

Postby Doc » Sat Jan 26, 2013 7:23 pm

HueyLD quoted what the regs require for the financial institution - same cusip and same account. The tax code however uses the "Substantially Identical' definition. From what I remember the IRS has never issued a ruling what that means when one speaks of mutual funds. Vanguard or any financial institution would be taken on one hell of a liability if they were to define what the IRS will not. I doubt any of them will. They will comply with the reporting rules - same cusip in same account and nothing more.
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sat Jan 26, 2013 7:29 pm

Doc wrote:HueyLD quoted what the regs require for the financial institution - same cusip and same account. The tax code however uses the "Substantially Identical' definition. From what I remember the IRS has never issued a ruling what that means when one speaks of mutual funds. Vanguard or any financial institution would be taken on one hell of a liability if they were to define what the IRS will not. I doubt any of them will. They will comply with the reporting rules - same cusip in same account and nothing more.

Doc, you must be correct.

VTSMX CUSIP: 922908306
(Vanguard Total Stock Market Index Fund Investor Shares)
VTSAX CUSIP: 922908728
(Vanguard Total Stock Market Index Fund Admiral Shares)

Different CUSIPs.

You know, I'm becoming happier and happier that I didn't just keep my question to myself.

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Re: "Substantially Identical" & 1099-B

Postby Doc » Sat Jan 26, 2013 7:39 pm

Phineas J. Whoopee wrote: Different CUSIPs.

You know, I'm becoming happier and happier that I didn't just keep my question to myself.

PJW


Don't let me lead you astray. What the reporting rules are and what the wash sale regs say are not the same thing.

Mutual Funds
There's some debate, but no direct authority, on the question of whether two mutual funds keying off the same index are substantially identical for purposes of the wash sale rule. Can you sell one S&P 500 index fund at a loss and buy a different S&P 500 fund the same day without having a wash sale?

Because there is no direct authority dealing with this question, reasonable minds may disagree. It's always possible to identify differences between funds managed by different companies, such as expense ratios and tax load. Some people conclude on this basis that funds maintained by two different companies are never substantially identical.

My feeling is that those differences aren't enough to prevent the two funds from being substantially identical.
http://www.fairmark.com/capgain/wash/wsident.htm

If two S&P index funds from different companies are substantially identical what do you think is so different about different share classes of the same fund.

The Fairmark article is from 2007 but given that it is Fairmark I would guess that there has been no IRS ruling or it would have been updated.
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Re: "Substantially Identical" & 1099-B

Postby lindisfarne » Sat Jan 26, 2013 8:22 pm

Phineas J. Whoopee wrote:Do you mean that would be the case even if I had sold VFINX, Vanguard S&P 500 Index Fund Investor Shares in my taxable account, and within the wash sale time window bought VINIX, Vanguard Institutional Index Fund in my Vanguard-administered 401(k) (as it happens I do not have such an account)?

I haven't done that. Let me emphasize again I am not asking anybody to explain my own taxes to me. I am suggesting the substantially identical question must have been resolved, and asking if anybody has had any more success than I in finding details.
PJW


I've always wondered if something like VTSMX & VFINX would be considered "substantially identical". It seems not, according to the examples in Pub 550. They're different indices, but unless I saw a clear statement from the IRS that different mutual funds (even from the same company) are never considered substantially identical, I'd wonder. (Also, what if you sold VTSMX & bought a total stock market from another company within the wash sale window?)

Regardless of whether Vanguard would have had to flag the trade as a "wash" according to the rules for filling out the 1099, the way I read Pub 550 (2012, p. 59) suggests that you would have a wash sale if you sold in the taxable account, & purchased the same in an IRA account within 30 days (before or after the sale).

Wash Sales

You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
Buy substantially identical stock or securities,
Acquire substantially identical stock or securities in a fully taxable trade,
Acquire a contract or option to buy substantially identical stock or securities, or
Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
(see also http://www.irs.gov/irb/2008-03_IRB/ar08.html )

From the 2012 Sch D Instructions:
If you received a Form 1099-B (or substitute statement), box 5 of that form will show any nondeductible wash sale loss if:

The stock or securities sold were covered securities (defined in the instructions for Form 8949, column (f)), and
The substantially identical stock or securities you bought had the same CUSIP number as the stock or securities you sold and were bought in the same account as the stock or securities you sold.

However, you cannot deduct a loss from a wash sale even if it is not reported on Form 1099-B (or substitute statement). For more details on wash sales, see Pub. 550.

Report a wash sale transaction in Part I or Part II (depending on how long you owned the stock or securities) of Form 8949 with the appropriate box (A, B, or C) checked. Complete all columns. Enter "W" in column (f). Enter as a positive number in column (g) the amount of the loss not allowed. See the instructions for Form 8949, columns (f), (g), and (h).
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Re: "Substantially Identical" & 1099-B

Postby SSSS » Sat Jan 26, 2013 8:38 pm

There was a pamphlet included with your 1099-B. Did you check it? It says this:

Vanguard will adjust the basis of securities held in the account for losses that are disallowed due to a wash sale, but only if both the purchase and sale of an identical security (a security with the same CUSIP) occur in the same account


So for Vanguard to report a wash sale, BOTH of the following must be true:

1. You must have bought and sold the exact same security (even different share classes will not be reported as wash sales).
2. The purchase and sale must have been in the same account (i.e. sale from taxable and purchase in IRA will not be reported).

Everything beyond this is the purview of self-reporting. And if you self-report to the IRS, you also need to adjust the basis in your Vanguard account or else future basis reporting will be inaccurate.

The pamphlet is "Changes to your tax reporting and 1099-B for mutual funds" and it's probably somewhere on the website if you didn't get one in the mail or no longer have it.
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Re: "Substantially Identical" & 1099-B

Postby lindisfarne » Sat Jan 26, 2013 8:44 pm

Phineas J. Whoopee wrote:VTSMX CUSIP: 922908306
(Vanguard Total Stock Market Index Fund Investor Shares)
VTSAX CUSIP: 922908728
(Vanguard Total Stock Market Index Fund Admiral Shares)

Different CUSIPs.

You know, I'm becoming happier and happier that I didn't just keep my question to myself.
PJW


Vanguard doesn't consider these to be different funds - just different share classes of the same fund. As far as I understand, you don't get a capital loss if on the day you switch from VTSMX to VTSAX your position in VTSMX is at a loss. (I could be wrong.)
    https://personal.vanguard.com/us/help/FAQMutualFundContent.jsp makes it clear that admiral shares & ETFs are a share class of Vanguard index funds.
This also seems relevant:
Conversions to Admiral Shares from the same fund are tax-free. However, exchanges from Investor Shares to Admiral Shares of a different fund (in a nonretirement account) are taxable because it is considered a sale and could produce a capital gain.


You can actually find a lot of good information in the IRS publications and by doing google searches of the IRS website (include site:irs.gov in your google search). You do have to read carefully & be persistent. This is the benefit of doing one's own taxes - you read these things & have this knowledge when you make future decisions that can have tax implications.
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Re: "Substantially Identical" & 1099-B

Postby sscritic » Sat Jan 26, 2013 8:45 pm

Yes, but Vanguard won't check the wash sale box even if they know it is because of the different CUSIPs.
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Re: "Substantially Identical" & 1099-B

Postby SSSS » Sat Jan 26, 2013 9:00 pm

Vanguard doesn't seem to have the pamphlet I mentioned on their website, so if you don't have the one that was mailed, I guess you're out of luck on that front.

There's similar information here (confirming that Vanguard does not report wash sales for purchases and sales in separate accounts, even of the exact same security):

https://personal.vanguard.com/jumppage/ ... ation.html

† Vanguard isn't required to make certain adjustments that are necessary for your tax return. For example, we don't adjust basis for wash sales when the purchase or sale is in another account or for taxes paid on gifts.


Also relevant:

Note: This information is not intended to be tax advice and cannot be used to avoid any tax penalties. We recommend that you consult a tax advisor.


Vanguard only reports what they're legally required to report.
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Re: "Substantially Identical" & 1099-B

Postby Default User BR » Sun Jan 27, 2013 3:11 am

Phineas J. Whoopee wrote:Absolutely a misunderstanding. If one sells a security at a loss in taxable, and in a 30 day prior to 30 day later time window replaces it in any account, including a 401(k), the wash sale rule is triggered.

The IRS has never ruled this to be the case. They have ruled that if it is bought in an IRA, it is a wash.

http://www.irs.gov/publications/p550/ch04.html#en_US_2012_publink100010601


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Re: "Substantially Identical" & 1099-B

Postby Default User BR » Sun Jan 27, 2013 3:20 am

Doc wrote:If two S&P index funds from different companies are substantially identical what do you think is so different about different share classes of the same fund.

That is, of course, a big "if". The Fairmark article is an opinion. However, it is the case that Vanguard can exchange different share classes of the same fund without it being a taxable event, so I think you'd have to stretch to claim that it's not a wash sale. Whether Vanguard or any other custodian would flag it is another question. It should be easy to test, have someone sell Admiral shares and buy some Investor in the same account. We'll know in a year.


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Re: "Substantially Identical" & 1099-B

Postby dickenjb » Sun Jan 27, 2013 9:18 am

sscritic wrote:When you buy and sell the same fund or different share classes of the same fund and Vanguard knows about it,* they will flag it. When Vanguard doesn't flag a wash sale, it doesn't mean it isn't a wash sale, it just means that it does not meet Vanguard's definition of a wash sale.

* If you have an IRA at Vanguard and sell in taxable and buy in the IRA, Vanguard might not "know it" and might not flag it.


I believe this is correct.
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Re: "Substantially Identical" & 1099-B

Postby Doc » Sun Jan 27, 2013 12:29 pm

Default User BR wrote:
Doc wrote:If two S&P index funds from different companies are substantially identical what do you think is so different about different share classes of the same fund.

That is, of course, a big "if". The Fairmark article is an opinion. However, it is the case that Vanguard can exchange different share classes of the same fund without it being a taxable event, so I think you'd have to stretch to claim that it's not a wash sale. Whether Vanguard or any other custodian would flag it is another question. It should be easy to test, have someone sell Admiral shares and buy some Investor in the same account. We'll know in a year.


Brian


If you exchange one fund for another at Vanguard into either a different share class of the same fund or the same fund in another account it is a non-taxable event. Vanguard carries the cost basis over to the new investment. Since this is a non- taxable event you can't have a "wash sale" because you have no capital loss (or gain) at all.

I just did this a few weeks ago and had the transactions and its nuances verified by Vanguard compliance people before making the "exchange".

FWIW I also did a transfer across accounts at Fidelity and all the cost basis of the original lots transferred over - not a taxable event and therefore no wash sale is possible.

(Aside: Fairmark is pretty reliable and they do say if they do not have definitive IRS rulings but yes it is their opinion.)
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Re: "Substantially Identical" & 1099-B

Postby Default User BR » Sun Jan 27, 2013 2:41 pm

Doc wrote:
Default User BR wrote:It should be easy to test, have someone sell Admiral shares and buy some Investor in the same account. We'll know in a year.

If you exchange one fund for another at Vanguard into either a different share class of the same fund or the same fund in another account it is a non-taxable event.

Which is, of course, why I didn't say anything about exchange. I specifically said sell Admiral and buy Investor. I should have made a further condition of the sale being a loss. Another test would be to sell a mutual fund and buy the ETF, as this will spread it across the "VBS barrier".


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Re: "Substantially Identical" & 1099-B

Postby Doc » Sun Jan 27, 2013 3:27 pm

Default User BR wrote:
Doc wrote:
Default User BR wrote:It should be easy to test, have someone sell Admiral shares and buy some Investor in the same account. We'll know in a year.

If you exchange one fund for another at Vanguard into either a different share class of the same fund or the same fund in another account it is a non-taxable event.

Which is, of course, why I didn't say anything about exchange. I specifically said sell Admiral and buy Investor. I should have made a further condition of the sale being a loss. Another test would be to sell a mutual fund and buy the ETF, as this will spread it across the "VBS barrier".
Brian


That is an interesting distinction. If you "sold" at a loss or exchanged to you MM account and the next day "bought" or exchanged from your MM account Vanguard probably wouldn't pick up the wash sale because of the different cuspid numbers. Probably same result with the ETF across the VBS boundary since it is a different legal entity. Nevertheless my opinion is that this is a wash sale and you should report it as such to the IRS.

FWIW I always file my taxes based on my careful reading of the gazillion pages of tax code that I have on my bookshelf next to my office chair. :wink:
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Re: "Substantially Identical" & 1099-B

Postby Phineas J. Whoopee » Sun Jan 27, 2013 5:07 pm

Thanks everyone for your contributions.

Would it be fair to say we've reached consensus that:

1) Vanguard's reporting in Box 5 of form 1099-B is based on one's having bought securities bearing the same CUSIP number within the backward- and forward-looking window for purchasing replacement shares;

2) Mutual funds which clearly must be substantially identical, because they are claims on the same underlying set of assets, such as for example and which we discussed Vanguard's Total Stock Market Index Fund Investor shares (VTSMX) and Total Stock Market Index Fund Admiral shares (VTSAX) have different CUSIPs, and therefore wouldn't be reported regardless of any further rules about the location of shares for a wash sale; and

3) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has not been a wash sale?

And as a second question, do we agree on a 4th point as well:

4) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has been a wash sale?

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Re: "Substantially Identical" & 1099-B

Postby Sidney » Sun Jan 27, 2013 5:15 pm

Phineas J. Whoopee wrote:3) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has not been a wash sale?

And as a second question, do we agree on a 4th point as well:

4) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has been a wash sale?

I always verify everything on the 1099-B when I do my taxes. I don't assume anything on the 1099-B is correct.
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Re: "Substantially Identical" & 1099-B

Postby sscritic » Sun Jan 27, 2013 5:25 pm

Phineas J. Whoopee wrote:And as a second question, do we agree on a 4th point as well:

4) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has been a wash sale?

I would tend to believe them when they mark a wash sale, certainly much more than if they leave the box blank. Trust, but verify.

Previously, I spent hours going over a hundred purchases of a fund I sold last April to verify that the numbers Vanguard showed on their website were correct with regard the the capital gain. It turned out I was missing one piece of information (that average basis can be computed separately for covered and non-covered shares); without that information, there was no match, with it, there was. When I got my 1099-B last week, there was nothing for me to do; all three sets of numbers matched.
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Re: "Substantially Identical" & 1099-B

Postby SSSS » Sun Jan 27, 2013 5:27 pm

Phineas J. Whoopee wrote:4) Therefore when calculating one's taxes one should not take Vanguard's 1099-B word for it that there has been a wash sale?


If there's a wash sale on the 1099-B, it's been reported to the IRS by Vanguard, so if you feel that it wasn't actually a wash sale you'd better try to sort it out and get them to amend the 1099-B.

Also, if you feel that there was a wash sale that Vanguard didn't report (either because of different CUSIP or different account) and you self-report it to the IRS, you do need to adjust the basis in your Vanguard account -- it won't be reflected on your current 1099-B (because it's not legally required to be), but if you don't adjust then the basis information on your future 1099-B's will be inaccurate (and not in your favor).
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Re: "Substantially Identical" & 1099-B

Postby Doc » Sat Feb 02, 2013 3:00 pm

Doc wrote:HueyLD quoted what the regs require for the financial institution - same cusip and same account. The tax code however uses the "Substantially Identical' definition. From what I remember the IRS has never issued a ruling what that means when one speaks of mutual funds. Vanguard or any financial institution would be taken on one hell of a liability if they were to define what the IRS will not. I doubt any of them will. They will comply with the reporting rules - same cusip in same account and nothing more.



I just downloaded my Vanguard Mutual Fund 1099-B into Turbo Tax. OMG. It's a lot harder to get things right than in the past. Every item had to be edited - some for average cost/specific ID items which won't effect many people and some for Box 6 a/b not being correct. Don't know if the problem is TT or VG.

But on the wash sale question TT supplied the following question and guidence:

Turbo Tax wrote:Did you buy additional shares of, or reinvest dividends in, xxx (or almost identical mutual fund shares) during 2012?


Substantially identical securities would include shares of the same mutual fund, or shares of stock of the same class from the same company.

Shares of a different class in the same company (i.e. preferred stock instead of common stock), or shares of a similar mutual fund offered by a different company, are generally not considered almost identical.



I don't think you can get away with "Vanguard made me do it".
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Re: "Substantially Identical" & 1099-B

Postby Default User BR » Sun Feb 03, 2013 2:52 am

People spend an inordinate amount of time worrying about wash sales.


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