alex_686 wrote: ↑
Sun Sep 09, 2018 11:11 am
KyleAAA wrote: ↑
Sun Sep 09, 2018 9:25 am
My own rule of thumb is that if it follows a different index, it is not substantially identical. I think that's probably overly conservative but it's a clear signal to go on and there are generally no shortage if ETFs out there following very-similar-but-not-quite-the-same indices to choose from.
I think you mean aggressive, not conservative. The IRS has clawed back taxes in these situations. There were a rash of cases back in the early 2000s
MnD wrote: ↑
Sat Sep 08, 2018 12:37 pm
No-one has ever provided a single shred of evidence that the IRS has denied a loss from buying one mutual fund within 30 days of selling another mutual fund. Once again we could dreg up the 2009 IRS publication 564 on mutual funds which states:
“Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.”
While technically correct I think this is misleading. First, the context is different actively managed funds, not similar index funds. Second, while I can't point to any fund to fund situations, I can point to situations that involved combinations of funds, underlying securities, futures, options, etc. The rules don't differentiate between different types of securities so I don't know why fund to fund would be excluded.
MnD wrote: ↑
Sat Sep 08, 2018 12:37 pm
Some people just like to make up rules out of thin air like "80% overlap" and "charts plot just about on top of each other".
Let us put this in context. The IRS has never issued a regulation. That being said, the SEC does not issue ruling on what exactly stock manipulation is, nor the FBI on exactly what fraud is. You don't want people to game the system, you want to leave some desecration for prosecution of cases.
While the IRS has never asked for charts that I know of, when I worked in mutual fund accounting they did ask us to create percentage overlap tests, run them when we did trades like these, and store the information for 7 years. They did audit this. At the tax conferences, the scuttlebutt was 80% was the magic number.
I personally think this would generate a wash sale. I know the IRS has gone after million dollar tax bills, I know the IRS requires institutions to run overlap tests, and I know that the rules are identical. I only know of cases of the IRS going after big money and the transactions were abusive. I believe It is like going 69 miles in a 65 zone. It volatilizes the law but I doubt the cops are going to pull you over.
Bigfoot and the Chupacabra are alive and well I see.
There is no "context" of active mutual funds in the IRS publication and language I provided. Again - "making things up".
The robo-advisory industry now exceeds $500 billion under management and is expected to expand to $7T by 2025. A key feature of the services is automated tax loss harvesting using matched pairs of index ETF's with 99.X% correlation and a very high degree of overlap. So your "scuttlebutt" of an 80% overlap criteria and the IRS going after "big money" is false or at least grossly outdated. The $500B robo advisory services advertise software managed tax loss harvesting using highly correlated index ETF's widely, including in detail in white papers. Here's some the published primary tax-loss harvesting pairs from Betterment. if the IRS is "going after this" I guess they don't have Google in their offices.
https://www.betterment.com/resources/re ... ite-paper/
US Total Stock Market
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SCHB Dow Jones U.S. Broad Stock Market 0.03
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US Mid-Cap Value Stocks
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IWS Russell MidCap Value 0.25
US Small-Cap Value Stocks
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IWN Russell 2000 Value 0.24
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SCHF FTSE Developed ex-US 0.06
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