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Advanced Webinar on Constructive Sale Rule Tackles Tough Concepts
Thursday, October 16, 2014
Thank you to our attendees for participating in Constructive Sales: The Exceptions, an advanced discussion on Section 1259 of the U.S. tax code and our 3rd Taxable Events Webinar. During last week's webinar, George Michaels, an authority on tax analysis/accounting of securities transactions (TAST) discussed the two exception rules – Closed Transaction Exception and Serial Hedge Exception. Taxpayers must understand these rules in order to identify when trades result in a constructive sale and to accurately calculate realized gains and losses.
Similar to previous webinars, Michaels included a smattering of history behind the constructive sale rule, which was introduced in 1997 and updated in 2001 with the Closed Transaction Exception and Serial Hedge Exception rules. Given the complexity of the topic, Michaels reviewed the basics about constructive sales and talked about concepts such as crossing transactions (the 2nd trade of a long/short transaction), appreciated financial positions (AFP) and “true” boxes.
Michaels then moved on to the meat of the presentation. He used a number of examples of trades to illustrate how to identify legitimate hedges (temporary hedges) that meet the exception rules. He concluded the presentation with a discussion about Safe Harbor, a way taxpayers can use these exception rules to legitimately execute constructive sales and not recognize gains as long as they do not engage in risk reduction transactions for a period of 60 days of each year that they wish to maintain the box.
At the close of the presentation, Michaels along with Daniel Tilkin, G2 partner and senior tax analyst, had time to answer several attendee questions including: “If the holder of a debt security receives equity shares in a reorganization, such as in AAL, will subsequent short sales of the equity constitute constructive sales?” and“If you pass all the tests for the Closed Transaction Exception and no constructive sale is recognized, do you still have to reset the holding period of the period as per the straddle rules?”
We hope attendees found the webinar informative. Please click here to access a recording and pdf of the slide presentation, which are available on our website. We are already planning our next webinar, Tax Implications of Straddles. Click here to read our white paper on this topic. To learn more about this upcoming webinar and other Taxable Events webinars, visit our webinar section. For additional TAST resources, visit our Resource page.