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Another Successful Primer Webinar
Wednesday, May 26, 2015
Last week we re-presented Wash Sales, Constructive Sales & Straddles: A Primer, our inaugural taxable events webinar that originally ran in March 2014. Similar to the first time we hosted this primer on tax analysis / accounting of securities transactions (TAST) -- an important process necessary to generate book to tax adjustments -- we had both a strong turnout and Q&A session. Thank you to our attendees -- tax managers, compliance officers, tax analysts, controllers, chief financial officers and accountants from hedge funds, hedge fund service providers and accounting & audit firms -- for participating in this event.
Our resident TAST experts, Daniel Tilkin and William Fang, G2 FinTech's Tax and Business Analysts respectively, led this discussion on IRC sections 1091, 1259 and 1092. Mr. Fang and Mr. Tilkin defined these rules and the key concepts behind them. They used a variety of examples of trading activity to illustrate how to apply these rules to investment portfolios and calculate taxable gains and losses. Below are some highlights.
Mr. Fang discussed the wash sale rule, which only applies to losses. When discussing substantially identical, a term used in the IRC text for both wash sales and constructive sales, Mr. Fang talked about the concept of feature comparison. For example, when examining equity replacement securities, in order to determine if one stock is substantially identical to another stock (and can thus trigger the wash sale rule) different attributes, such as voting rights, common vs. preferred and dividend rights must be compared in order to accomplish this.
Mr. Tilkin covered constructive sales and straddles. Unlike the wash sale rule, the constructive sale rule applies to gains (appreciated financial positions), not losses. Mr. Tilkin explained different instances when the constructive sale rule can be triggered and talked about exceptions to this rule. Legitimate short-term hedging, as long as it meets certain time requirements, qualifies as an exception to the constructive sale i.e. the taxpayer does not have to recognize the constructive gain.
During the discussion on straddles, Mr. Tilkin talked about offsetting positions, loss deferral and how holding periods must be adjusted in order accurately determine disallowed losses. Mr. Tilkin also explained that qualified covered calls (a legitimate economic strategy for enhancing income on equities) are exempt from the straddles rule. He also explained that losses in an identified straddle are disallowed versus deferred.
Mr. Tilkin ended the presentation noting that in many instances these events can and do impact one another. For example, a non-wash sale can become a wash sale because of the effects of an identified straddle.
During the Q&A session, one attendee wanted a more detailed explanation of the wash sale (chaining) example that was presented; another attendee wanted to know how useful 1099-b forms were and one attendee asked specifically about how to identify securities in offsetting positions in regards to the constructive sale rule. Mr. Fang and Mr. Tilkin effectively fielded these questions and supplied additional examples to better explain their responses.
We hope attendees found the webinar informative and helpful. For those unable to attend or if attendees wish to review some of this very complex subject matter, a recording and pdf of the slide presentation are available on our website. Please click here to access them. Our YouTube channel features this video as well as video clips on wash sales, constructive sales and straddles.
Upcoming Webinar on Dividends
Our next webinar -- Tax Analysis of Dividends -- will take place on July 15th and discuss how to compute the tax status of dividends and comply with IRC sections on Qualified Dividends (IRC § 1(h)(11), Dividends Received Deductions (IRC § 243) and Short Dividends (IRC §263(h)). One CPE credit may be earned by active participation in this webinar.
To learn more, visit our webinar section webinar section. For more TAST resources, visit our Resource page.