Specific Identification of Mutual Fund Shares Sold

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johndcraig

Specific Identification of Mutual Fund Shares Sold

Post by johndcraig »

It now appears that Vanguard (both brokerage and mutual funds) will adopt a simple and effective policy that will permit us to comply with the IRS confirmation requirement.

The policy will be along these lines: http://www.diehards.org/forum/viewtopic ... 2085#52085

Ill keep you posted on further developments.

Thank you Jack Bogle for directing my initial request to the appropriate people at Vanguard.

John
Wagnerjb
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Post by Wagnerjb »

They do exactly that for me already. I just call my Flagship rep and tell him I am faxing him a letter - which has the exact same features as your sample. He faxes me back an acknowledgement letter.

You just have to badger them to do it, since many representatives are not familiar with the requirements and are reluctant to do something they don't understand.

Best wishes.
Andy
Topic Author
johndcraig

Post by johndcraig »

Andy

My flagship representative flat out refused to do so the last time I requested it. Most others have had similar problems. Now a simple uniform solution appears to have been reached. I’m told that it is official for brokerage, but still awaiting final word from mutual funds (Vanguard often treats brokerage and mutual funds as separate businesses).

John
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mickeyd
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Post by mickeyd »

I have always found it odd that VG did not have a simple fill-in-the-blanks form or on-line capacity in order to get this done in a more efficient way. I also have sent them a personally composed letter, similar to the ones mentioned here.

FWIW, I do not believe that the IRS is ever going to make me prove that I sent such a letter to VG several years ago to sell about 50 TSM shares, but you never know about those sneaky devils.
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Topic Author
johndcraig

Post by johndcraig »

Silence Speaks Volumes

Vanguard’s policy on this matter has caused considerable frustration to many, and this matter has been the subject of many threads. Two recent threads discussing these problems are:

http://www.diehards.org/forum/viewtopic ... 2501#52501

http://www.diehards.org/forum/viewtopic ... 0782#70782

Vanguard’s recent policy, as conveyed to me and Alex, was that they would keep whatever was sent on file, but would not provide the written confirmation as required by the IRS.

In order to deal with this I sent an email to Jack Bogle explaining the matter and asking him if he would pass it on to a responsible individual at Vanguard. Jack did so and this triggered an immediate response from Vanguard and ultimately the resolution of the problem as described above.

Thanks to the intervention by Jack this problem has now been resolved.

The silence on this thread speaks volumes.

John
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cool

Post by edge »

So, will we see some announcement?
johndcraig wrote:Silence Speaks Volumes

Vanguard’s policy on this matter has caused considerable frustration to many, and this matter has been the subject of many threads. Two recent threads discussing these problems are:

http://www.diehards.org/forum/viewtopic ... 2501#52501

http://www.diehards.org/forum/viewtopic ... 0782#70782

Vanguard’s recent policy, as conveyed to me and Alex, was that they would keep whatever was sent on file, but would not provide the written confirmation as required by the IRS.

In order to deal with this I sent an email to Jack Bogle explaining the matter and asking him if he would pass it on to a responsible individual at Vanguard. Jack did so and this triggered an immediate response from Vanguard and ultimately the resolution of the problem as described above.

Thanks to the intervention by Jack this problem has now been resolved.

The silence on this thread speaks volumes.

John
Topic Author
johndcraig

Post by johndcraig »

Announcement
So, will we see some announcement?
I suggested that V make a public announcement or at least start a thread on this forum. The person I spoke to seemed unsure what could be done and stated that she was not authorized to start a thread here.

So the present status for funds held at Brokerage is that they will follow the policy outlined in the thread cited above for everyone. At Mutual Funds division they will now follow that policy for me, and will presumably adopt a broad policy covering everyone shortly. I don't know if or when we will see a public announcement.

John
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Post by NAVigator »

johndcraig wrote:Silence Speaks Volumes

The silence on this thread speaks volumes.

John
I'm not sure what you were expecting. I'm not even sure what you mean by the silence speaking volumes. I guess it would mean that this isn't a serious matter for many of us. I'm glad it resolved an issue for those affected.

Jerry
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Post by oneleaf »

johndcraig wrote:Silence Speaks Volumes

The silence on this thread speaks volumes.

John
Thank you so very much for your efforts in improving Vanguard's services.
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Post by david99 »

I think that there is a high interest in having an easy to use Specific Identification Method with Vanguard. Fidelity makes it easy to use the Specific Identification Method --- I don't see why Vanguard can't do the same.

Thanks for your efforts in this area.
Topic Author
johndcraig

Post by johndcraig »

For those who may not understand my “silence speaks volumes” comment, suffice it to say that I wasn’t fishing for thanks or compliments. Those to whom the comment was directed will understand its intent.

John
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Post by mickeyd »

Those to whom the comment was directed will understand its intent.
It must not be for me as I do not understand it.
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Post by cudaman »

johndcraig wrote:In order to deal with this I sent an email to Jack Bogle explaining the matter and asking him if he would pass it on to a responsible individual at Vanguard. Jack did so and this triggered an immediate response from Vanguard and ultimately the resolution of the problem as described above.

Thanks to the intervention by Jack this problem has now been resolved.
John - Sounds like you've made some progress on this issue and it's greatly appreciated. As I don't hold a brokerage account, however, I wonder if the problem is truly resolved. I wasn't aware of the various divisions at VG, but sounds like the "mutual fund division" is still non-committal? Seems to me if VG doesn't make such a policy public and in writing, then those w/o Flagship status (and a designated Flagship rep) are still at the mercy of whoever answers the phone at VG.

Any updates you can provide will be greatly appreciated. Thanks for all you've done on this.

Regards,
Jerry
Topic Author
johndcraig

Post by johndcraig »

Jerry

I suspect that you can get the same treatment from “mutual funds”, but it’s possible that the word is not out to everyone there yet. If the person you speak to gives you any grief, I suggest that you refer them to the new policy at “brokerage”. I can’t imagine you will ultimately have a problem, but it may take a bit longer until official at MF. Let us know how it turns out if you do contact MF.

John
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Post by stebul »

johndcraig wrote:Jerry

I suspect that you can get the same treatment from “mutual funds”, but it’s possible that the word is not out to everyone there yet. If the person you speak to gives you any grief, I suggest that you refer them to the new policy at “brokerage”. I can’t imagine you will ultimately have a problem, but it may take a bit longer until official at MF. Let us know how it turns out if you do contact MF.

John
John, first, thanks for trying to get this fixed. Unfortunately, based on my experiences, I don't think that this approach is likely to work if there is a problem with the phone rep knowing about the policy. If the phone rep doens't know he/she will likely just tell you that VBS is different than mutual funds. You will then need to tell them to check with compliance (which will require that they call you back within 24 hours). Kind of defeats the purpose.

John, did Vanguard give you any hope they were planning to handle this properly through the automated sell capabilities on the website? Is this the final decision on how to handle HIFO or specific lot id sales at Vg mutual funds, or is it an acknowledged stop gap?
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Post by cudaman »

NAVigator wrote: I guess it would mean that this isn't a serious matter for many of us. I'm glad it resolved an issue for those affected.
I don't understand why this isn't a serious matter for many of us. Most of us, I'm guessing, do not have a designated representative at VG that we can work individual agreements with. Is that even possible if you are not of Flagship status?

I believe the large majority of investors at VG will need to deal with this issue if they want to take advantage of specific share ID. All the advice on this site regarding tax efficiency is very valuable, but without specific share ID confirmation from VG, the regular "joe investor" loses a legal tool described by the IRS for optimizing this tax deferring strategy.

Jerry - Maybe you can explain why this isn't something I should be concerned with? Maybe the advantages aren't worth considering?

Regards,
Jerry
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Post by dave.d »

I think johndcraig has done all of us (and all of Vanguard's clients) a great service by getting this clarified. I have not had occasion to do specific share identification yet, but can well imagine that I will, and that when I do it will put $$ in my pocket.

I hope the new policy is also extended to mutual funds, and publicly announced, and that john or others will post here when those things happen.

Many thanks
--Dave
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Post by Eric »

cudaman wrote:Jerry - Maybe you can explain why this isn't something I should be concerned with? Maybe the advantages aren't worth considering?
I'm not Jerry, but I'd guess that most posters hold essentially all of their investments in tax-sheltered accounts. Thus, a relatively small percentage of posters will be interested in this issue (which may explain the "silence" that upset John). For those of us who are affected, though, I agree that it is an important issue.
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Post by NAVigator »

cudaman wrote:
NAVigator wrote: I guess it would mean that this isn't a serious matter for many of us. I'm glad it resolved an issue for those affected.
I don't understand why this isn't a serious matter for many of us. Most of us, I'm guessing, do not have a designated representative at VG that we can work individual agreements with. Is that even possible if you are not of Flagship status?

I believe the large majority of investors at VG will need to deal with this issue if they want to take advantage of specific share ID. All the advice on this site regarding tax efficiency is very valuable, but without specific share ID confirmation from VG, the regular "joe investor" loses a legal tool described by the IRS for optimizing this tax deferring strategy.

Jerry - Maybe you can explain why this isn't something I should be concerned with? Maybe the advantages aren't worth considering?

Regards,
Jerry
Well, you quoted half of what I wrote, which was in reply to John's statement that the silence in this thread speaks volumes. Hence my statement that I guess it doesn't matter to many. I didn't say it didn't matter to me or you or even the majority.

As for "Most of us, I'm guessing, do not have a designated representative at VG that we can work individual agreements with.", I don't believe it is necessary. I believe Mel and Andy have explained in previous posts what is involved in getting specific shares sold at Vanguard. It is not a private agreement, but rather Vanguard's policy in this matter with a procedure for accomplishing the sale.

As I said, "I'm glad it resolved an issue for those affected.". The new method will make it easier for us.

Jerry
"I was born with nothing and I have most of it left."
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Post by cudaman »

NAVigator wrote:Well, you quoted half of what I wrote, which was in reply to John's statement that the silence in this thread speaks volumes. Hence my statement that I guess it doesn't matter to many. I didn't say it didn't matter to me or you or even the majority.

As for "Most of us, I'm guessing, do not have a designated representative at VG that we can work individual agreements with.", I don't believe it is necessary. I believe Mel and Andy have explained in previous posts what is involved in getting specific shares sold at Vanguard. It is not a private agreement, but rather Vanguard's policy in this matter with a procedure for accomplishing the sale.

As I said, "I'm glad it resolved an issue for those affected.". The new method will make it easier for us.
Jerry - My point was that what has apparently worked for Andy & Mel hasn't consistently worked for others, hence no clear policy on the part of VG. Maybe this will now change. My question to you was to see if I'm overemphasizing the advantages of SSID. Probably a poor choice of words on my part. I appreciate your response and did not intend to quote you out of context.

Regards,
Jerry (The other Jerry in this thread. Almost looks like I'm talking to myself. :) )
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Post by grabiner »

Eric wrote:
cudaman wrote:Jerry - Maybe you can explain why this isn't something I should be concerned with? Maybe the advantages aren't worth considering?
I'm not Jerry, but I'd guess that most posters hold essentially all of their investments in tax-sheltered accounts. Thus, a relatively small percentage of posters will be interested in this issue (which may explain the "silence" that upset John). For those of us who are affected, though, I agree that it is an important issue.
And it's important for those of us who are affected, so we do post on it. The last time I sold Total Stock Market, I sent a letter indicating which lot to sell, and received an acknowledgement. I had bought the lot for $5000 and sold it for $5032, so I had a $32 capital gain. With average-cost accounting, my basis would have been about $4000, and a $1000 capital gain would have cost me $210 in federal and state taxes.
Topic Author
johndcraig

Post by johndcraig »

To clarify

As grabiner points out, this matter is, or should be, important to anyone who holds funds in a taxable account and has either bought shares on different dates or has dividends reinvested. I suspect that the past difficulties in getting V to comply may have caused some to instead switch to the costly average cost method.

The past policy of V was inconsistent at best as can be seen from the threads cited. Then V attempted to start a consistent policy as written to both me and Alex last July:
If you need to sell shares using the 'specific share identification' method, you should plan on conducting your transactions in writing, we cannot accept clerical or monetary items via e-mail. It should be noted that telephone redemption or exchange and checkwriting defeat the purpose of using the specific share identification method.

Please be advised that we will keep your letter on file; however, it is your responsibility to keep records of the number of shares redeemed or transferred on a specific date, and to report that information to the IRS.
In accordance with that policy my V rep refused to send me anything in writing the last time I requested it. That policy does not comply with the specific IRS requirement for a written confirmation of the seller’s specification of shares sold, and even if the IRS should accept holding a letter on file, we cannot be assured that V will still have evidence of this many years hence when audited. In that note they also refused to accept an email, which puts an extra burden on all.

For those who are concerned that V will not follow through on the new policy described in the above post, based upon my conversations I feel certain that they will; it may, however, take them a while to get out a public notice. My confidence is based upon the fact that the initial contact came from Jack Bogle and it went to an appropriately high level at V.

Until public notice is received, please let us know your experience with V’s compliance with its new policy. If you encounter problems or confusion at V, I can contact the person at V who is spearheading this.

John
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Post by alvinsch »

johndcraig wrote:
Until public notice is received, please let us know your experience with V’s compliance with its new policy. If you encounter problems or confusion at V, I can contact the person at V who is spearheading this.

John
I'm not sure when this new policy should take effect but I snail mailed them specific identification instructions to sell that they received/sold on Oct 1 and requested a date stamped copy of the letter to comply with IRS requirements. I haven't received anything from them. I've done specific identification 4 times with them and only once did they comply with my request and return a copy of the request.

Any improvement would be greatly appreciated but reading all these threads, it's still unclear to me exactly what is the new policy and how one goes about receiving confirmation since they still ignore requests for confirmation.

- Al
Topic Author
johndcraig

Post by johndcraig »

Al

Your request predated the change in policy, so I’m not surprised. Was the request to brokerage or mutual funds? Can you try calling them and referring to the policy change as noted above. Alternatively, you might try something similar to the email approach described in the OP and then follow up with call. Please let us know how the call turns out.

John
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Post by sscritic »

John:

There are several issues here that need to be carefully reviewed by Vanguard's lawyers before a policy sees the light of day. Look at what appears to be a simple sentence from them that you quoted:
Please be advised that we will keep your letter on file; however, it is your responsibility to keep records of the number of shares redeemed or transferred on a specific date, and to report that information to the IRS.
This statement is both true and misleading, as well as irrelevant. It states that you are responsible for keeping records and filing your own taxes (true). However, there is an implication that they don't report the information to the IRS (not true). Specifically, this sentence refers to "shares redeemed." When you sell shares, you get a confirmation in writing (either by mail or electronically). Vanguard reports that information to the IRS. When you fill out your Schedule D, you should use the number of shares sold and "specific date" of the sale reported to you and the IRS by Vanguard.

To this point, we know that Vanguard does send a confirmation, they do report to the IRS, and you are responsible. But it is all irrelevant to your concern, confirmation of the sale of shares purchased on a specific date.

When you fill out your schedule D, you also need to fill out "date purchased" and "basis." These are not provided by Vanguard. The Vanguard statement would be more correct if it had referred to "records of the specific date of purchase of the number of shared redeemed or transferred." Their statement didn't actually say what I believe they intended to say. But that is what their legal department is for, to make sure that what they publish is what they mean to say.

In your (and my) case, we are interested in confirmation of the purchase date of the shares sold. But what do you really want? Is it confirmation that they actually sold shares purchased on the date you specified? I believe that is impossible since Vanguard is not holding numbered paper certificates issued on the day you purchased the shares. You only own a proportionate share of the whole pool of the fund.

Do you want confirmation that you requested that they sell shares purchased on the date you specified (even if there is no way for them to isolate and actually sell "those" specific shares)? I believe that the answer may be yes; all you want from them is a confirmation that they received your request identifying the purchase date of the shares you wished to sell.

Or do you want more?
Topic Author
johndcraig

Post by johndcraig »

Sscritic

As you state above the past policy was inadequate. If you review the post cited in the OP you will see what has been requested and agreed by V, i.e., a confirmation of the seller’s specification of the shares sold. That is what the IRS requires.

John
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Post by mickeyd »

This is getting to be quite an interesting thread, no?
When you fill out your schedule D, you also need to fill out "date purchased" and "basis." These are not provided by Vanguard. The Vanguard statement would be more correct if it had referred to "records of the specific date of purchase of the number of shared redeemed or transferred." Their statement didn't actually say what I believe they intended to say. But that is what their legal department is for, to make sure that what they publish is what they mean to say.
I am curious if anyone on this forum has ever been asked by the IRS to provide proof that the specifically identified shares basis is correctly reflected on their tax forms. I never have been asked and I know of no one who has, though it is not something that I have done much research on.

Maybe we are all getting concerned over an IRS requirement that they never take the time to question unless mega-shares are involved.
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Post by Wagnerjb »

Maybe we are all getting concerned over an IRS requirement that they never take the time to question unless mega-shares are involved.
Hi MickeyD: I suspect you are right. My take is that the IRS rarely audits transactions for a) the wash sale rule and b) specific identification of lots sold. Why not? Because finding an error by the taxpayer merely results in taxes being paid earlier (timing only), rather than additional taxes being paid in total.

Best wishes.
Andy
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Post by ataloss »

JohnCraig- thanks for working on this. Vanguard's attention to this matter has been disappointing.
Topic Author
johndcraig

Post by johndcraig »

Wagnerjb wrote:
Maybe we are all getting concerned over an IRS requirement that they never take the time to question unless mega-shares are involved.
Hi MickeyD: I suspect you are right. My take is that the IRS rarely audits transactions for a) the wash sale rule and b) specific identification of lots sold. Why not? Because finding an error by the taxpayer merely results in taxes being paid earlier (timing only), rather than additional taxes being paid in total.

Best wishes.
Andy, is this and your earlier post intended to suggest that this is all much ado about nothing? Based upon your comments, what action steps do you suggest?

John
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Post by Wagnerjb »

JohnCraig said:
Andy, is this and your earlier post intended to suggest that this is all much ado about nothing? Based upon your comments, what action steps do you suggest?
John - my comments were in response to MickeyD's suggestion that the risks of an audit may be small. I agreed with him. IMO, the risks are small of an audit. In addition, the probability that a reasonable tracking system will fail is also small. Finally, the consequences of failure are moderate (no penalty, no jail time, no additional taxes, etc.).

I don't encourage anybody to flout the law. But when trying to comply with an outdated provision (online trading has made these IRS rules very awkward at best), I believe a reasonable effort will suffice. If you don't get a confirmation after the trade - but have one the day you execute the trade - I don't see the problem. Maybe you have an e-mail rather than a letter. In cases such as this, you have demonstrated that you met the intent of the IRS rule - which is that identification must be made at the time of the trade, rather than later when taxes can be manipulated.

I don't see anything wrong with your efforts. Personally, I doubt if you will change a company the size of Vanguard - but it cannot hurt to try.

Yes, it is frustrating dealing with Vanguard for specific identification but I try to minimize the frustration (educate your Vanguard rep in advance and insist on dealing with him when using specific ID), and realize that Vanguard is an excellent firm overall....and this aspect is a minor weakness in the grand scheme of things.

Best wishes.
Andy
Topic Author
johndcraig

Post by johndcraig »

Andy

I find it hard to believe that I’m about to respond in depth to your post, but given your obvious intent to trivialize and deny I find it difficult to do otherwise.

In your first post and in the last paragraph of the above post you state that all that is necessary it so educate your rep and they will return copies to you. I’m sure that you must have read the many posts that state that Vanguard had recently issued a written policy statement refusing to make any confirmation in writing as required by the IRS. In my many discussions with the reps and their supervisors it was obvious that they were fully educated, but their hands were tied by the policy. You know this from the above posts, why do you continue to make statements such as this?

You state that all that is needed is to meet the intent of the rule showing that identification is made at the time of the trade. I know that you are aware that the IRS specifically requires a written confirmation within a reasonable time. Of course getting a confirmation within a couple of days or getting an email response should suffice, this is made clear from the above posts. That is in fact what was agreed with Vanguard. If you are implying that no written confirmation is necessary, then your interpretation of the IRS position is flat out wrong, and you know it.

You seem to know something about the IRS, so of course you realize that the chances of getting audited are always small. It is also true that this would not be high on the list of abuses to catch in an audit. But why should anyone want to take the chance if there is absolutely no need to do so. Your statement that an audit adjustment would result in no additional taxes makes no sense even if you are suggesting it is (only) a timing adjustment. If there were no tax benefit from specific identification, why would anyone do it? There is a benefit, and the IRS can take it away.

Bottom line is that an agent just might question tax basis and he just might read the written IRS policy that requires a written confirmation. An adjustment would result in a tax cost, at least timing and possibly permanent. Perhaps the biggest detriment from Vanguard’s past policy is that they seem to be actively encouraging people to elect average cost (see their email quoted above) and through their policies they were likely successful in many cases.

Finally, you suggest that it is unlikely that the policy of Vanguard will change. You are aware that such change on Vanguard’s part is extremely simple, and it subjects Vanguard to no downside (except maybe getting fewer people to elect average cost method). Why wouldn’t they make such a simple change? You are also assuming that Jack Bogle no longer has influence at Vanguard. I can assure you that he does. It is possible that the change might not go perfectly smoothly, but it will happen.

John
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Post by Wagnerjb »

In your first post and in the last paragraph of the above post you state that all that is necessary it so educate your rep and they will return copies to you. I’m sure that you must have read the many posts that state that Vanguard had recently issued a written policy statement refusing to make any confirmation in writing as required by the IRS. In my many discussions with the reps and their supervisors it was obvious that they were fully educated, but their hands were tied by the policy. You know this from the above posts, why do you continue to make statements such as this?
John: I was stating factually what my experience has been. I have successfully had Vanguard respond to my specific ID letters for several years now, most recently this summer. As far as a change in Vanguard policy, I have the same question as Edge does. Where is the announcement? I haven't seen anything. Until I see something from Vanguard, I will continue to assume I can get the same treatment as in the past and I will continue to share my experiences with others here.
If you are implying that no written confirmation is necessary, then your interpretation of the IRS position is flat out wrong, and you know it.
I did not say that, nor did I intend to imply it either. I agree that you absolutely need a confirmation, but the issue of whether you need two or one, or whether it has to be before or after the trade, or whether e-mail will suffice - these are the fine points that aren't important IMO.
But why should anyone want to take the chance if there is absolutely no need to do so.
When the rules aren't crystal clear, you have to assess the risks for yourself. My point is that getting some (any) form of confirmation is adequate, and the risks are exceedingly remote. You are not taking much of a chance if you get something in writing. However, when you do a risk assessment, you have to evaluate both the probability of failure and the consequences of failure. If certain death is the consequence, I wouldn't accept even a small risk of failure.

I wish you luck in getting this policy changed, but in the meantime - until I see an announcement from Vanguard - I will continue to assume that I can get the treatment that I have gotten in the past.

Best wishes.
Andy
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Post by Ella »

John,

I want to thank you for the efforts you have made to effect a policy change at Vanguard that will benefit many investors. In the long run it will also benefit Vanguard, by making them a more competitive and attractive brokerage.

I am in the early accumulation phase, but share identification is definitely an option I will want to have when I get to the rebalancing and withdrawal phases. It is important enough that I have held off on taxable investing with Vanguard until I could get more concrete assurance that it would be feasible.

FYI, in the past day I have called both the mutual fund side and the brokerage side of VG to ask them about this. On the mutual fund side, the immediate answer was "we don't do that," but all I had to do was ask her again, and the next answer was "let me check our written policy." She came back on the line a minute later and told me it could be done as long as I call VG on the day of sale and specify the shares and purchase date. VG will then send me a letter via snail mail confirming my request. I sign the letter and send it back to them. She did emphasize that this is a PITA, as if trying to discourage me off the idea entirely, but there is at least a written policy now.

When I called the brokerage side, the rep immediately said, "yes, we do that." His explanation of how it works: I make the sale online, call within 1-2 days and tell them which lots I specified, and they attach that information to the written confirmation that gets sent on every sale. He even mentioned that one day in the future VG may actually get to the point where share identification can be done online at the time of sale! Dare to dream.

Anyway, thanks again John. I'm grateful that you have taken action to get the ball rolling on this.

Ella
hoxbox
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Post by hoxbox »

*Sigh* this has been discussed many times before. Vanguard need to spend the dough and upgrade their system for online automatic specific ID selling like Fidelity.
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johndcraig

Post by johndcraig »

Ella, thanks

Thanks for running this through. I am not surprised about the confusion at mutual funds, but glad to see they are on board. The next time I specifically identify I will request email notification and confirmation (as explained in the post cited above) and see how that goes.

[edit addition]

Ella, re PITA; it’s no surprise that they feel that way. As I said earlier Vanguard (mutual funds) seems to try and discourage using specific identification. As quoted earlier:
It should be noted that telephone redemption or exchange and checkwriting defeat the purpose of using the specific share identification method.

Additionally, once you start using a certain tax reporting method for a portfolio or fund account, you must continue to use that method for the life of the account, unless you receive written notification from the IRS. Therefore, any Average Cost information you receive from Vanguard should be disregarded.
“Mutual funds” does seem to be trying to discourage use of specific identification, and if so that is a disservice to their clients. Brokerage seems much more user friendly. Give it time; my guess is that mutual funds will come around.


Hoxbox, yeah, I have an account at Fidelity and their automated system is a lot easier. The new V policy will at least avoid potential tax problems, and it should be relatively easy, particularly if the email process works.

John
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johndcraig

Post by johndcraig »

I received this email from Vanguard yesterday
I wanted to let you know that your letter to Mr. Bogle did eventually make its way to the right folks at Vanguard, and we are reviewing how our policy is implemented across the different lines of business (brokerage vs. funds), client service groups, and mediums (e-mails vs. letters). I hope to have a final "official" response to you shortly.

Thanks for your patience.
Thanks again Jack Bogle and thank you Vanguard for your professionalism in dealing with this matter. I’ll post any further developments.

John
cudaman
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Post by cudaman »

John - Sounds like positive things are happening. I personally hope VG decides to handle both the seller's intent and VG's confirmation electronically on the VG website in the individual users account. That would minimize the "PITA" mentioned above as far as individual snail mail or separate email. At this point though, any resolution is a move in the right direction. Thanks again.

Jerry
hoxbox
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Post by hoxbox »

Anybody aware of another company besides Fidelity that does online automatic specific share identification when selling? I'm thinking I'll need 2 companies that do that when I do tax loss harvesting. If not I may just not trade for 30 before and 30 after the sell and buy back into the same account to avoid wash rule.
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Mel Lindauer
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Post by Mel Lindauer »

hoxbox wrote:Anybody aware of another company besides Fidelity that does online automatic specific share identification when selling? I'm thinking I'll need 2 companies that do that when I do tax loss harvesting. If not I may just not trade for 30 before and 30 after the sell and buy back into the same account to avoid wash rule.
Just because you buy it back at another brokerage company doesn't mean you can ignore the wash sale rule.

Regards,

Mel
hoxbox
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Post by hoxbox »

Mel Lindauer wrote:
hoxbox wrote:Anybody aware of another company besides Fidelity that does online automatic specific share identification when selling? I'm thinking I'll need 2 companies that do that when I do tax loss harvesting. If not I may just not trade for 30 before and 30 after the sell and buy back into the same account to avoid wash rule.
Just because you buy it back at another brokerage company doesn't mean you can ignore the wash sale rule.

Regards,

Mel
I was under the impression wash rule does not apply if you sell Total Stock Index from Vanguard and immediately buy Total Stock Index from Fidelity?
Or if you sell Total Stock form Fidelity and immediately buy the components like a combination S&P 500 and Spartan Extended Market from Fidelity.

In the end I may just keep it simple and just put the money in an money market fund for 30 days before I rebuy into same fund.
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Mel Lindauer
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Post by Mel Lindauer »

hoxbox wrote: I was under the impression wash rule does not apply if you sell Total Stock Index from Vanguard and immediately buy Total Stock Index from Fidelity?
Or if you sell Total Stock form Fidelity and immediately buy the components like a combination S&P 500 and Spartan Extended Market from Fidelity.
That's an incorrect assumption, since the wash sale rule states, that, in general you have a wash sale if you sell stock at a loss, and buy substantially identical securities within 30 days before or after the sale. It doesn't matter where you buy them, but only that they're substantially identical.

You can learn more about what probably constitutes "substantially identical securities" from Fairmark.com, the web site considered to be an authority on taxation. Here's a link:

http://www.fairmark.com/capgain/wash/wsident.htm
In the end I may just keep it simple and just put the money in an money market fund for 30 days before I rebuy into same fund.
As noted in the Fairmark link, you could buy an actively-managed fund that fishes in the same waters as the index fund you sold at a loss and that should work.

You can do all that's legally required right at Vanguard; you don't have to have an account at another fund company.

Regards,

Mel
Topic Author
johndcraig

Post by johndcraig »

Vanguard official policy

Below are portions of a letter I just received from Vanguard that provides its current policy, as discussed above.
Below I have provided Vanguard’s current policy on assisting clients who wish to use the specific identification cost basis method for tax reporting….


…after placement of your FundAccess trade, and upon request, we will send you a letter or e-mail confirming specifications of the trade.

… after placement of your Vanguard mutual fund exchange or redemption, and upon request, we will send you a letter or e-mail confirming specifications of the trade.
So for both brokerage and mutual funds they have now adopted a uniform policy of sending (if requested) a confirming e-mail or letter confirming the specifications, as required by the IRS.

Please report here if you have any problems with this in the future.

John
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mickeyd
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Post by mickeyd »

Thanks John. I have altered my "request letter" to include a request for a confirmation email or letter after completion.
Last edited by mickeyd on Sat Nov 10, 2007 12:34 pm, edited 1 time in total.
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Topic Author
johndcraig

Post by johndcraig »

mickeyd wrote:Thanks John. I have altered my "request letter" to include a confirmation email or letter after completion.
I haven't seen an acutal confirmation email yet, but it should have wording along the lines of:

"I acknowledge receipt of your email on November 1, 2007, and confirm your specification of the particular shares sold after close on that date."

John
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