Source: https://www.bogleheads.org/forum/viewtopic.php?f=1&t=264203
Timestamp: 2019-04-18 21:17:35+00:00

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I am considering TLH, but I also know a dividend is coming in early/mid December. I will have to pay taxes on the dividend. If I TLH before the ex-dividend date, do I have to pay any taxes? I've tried to find out when they will issue the dividend, but can't find anything specifically. I also read somewhere where the dividend should be estimated on the website by early Nov. But I can't find anything of that nature. Perhaps I'm missing it.
I've held the fund longer than 60 days, so I don't think I'm in danger of hitting any frequent trading policies per the prospectus.
I've thought about buying another Int'l fund, but I'd want to eventually gravitate back to SWISX. For this reason I'm thinking of holding the funds in a MMF for 30 days.
For the benefit of the ignorant, what is SWISX?
As long as you don't buy anything substantially identical to SWISX from 30 days before to 30 days after your sale for a loss, in any of the accounts you have, then you should be fine. Note that dividends and cap gain distributions count as buying and would result in a partial wash sale.
According to Morningstar, last year's distribution was on Dec 18, but in prior years it was as early as Dec 10. The trend has been to later in the month. But why worry about the exact date, just TLH tomorrow, if everything else is in order.
Since it's an international fund and I buy an international fund (FSPSX) through work in my 401k on a bi-weekly basis will this be a wash-sale?
Upon closer inspection - I think FSPSX and SWISX seem to be very similar to me anyway.
first 10 holdings are exactly the same.
Country holdings are very similar.
I guess I may not be able to TLH anyway now.
You can TLH if you wish. Based on a quick review, those funds are not substantially equal even if you are conservative in your interpretation of the rule. One of the funds states that it has 350 holdings and the other has over 950 and they are not based on the same index.
You need to be careful about going to a MM as part of TLH. You can end up selling low and buying high. While this will save you taxes, it will lose you money.
The IRS term is "substantially identical", which is much closer than "substantially similar".
If the amount that you want to TLH is substantial and you still want to move from SWISX to a mmf, then you could adjust the holdings in your 401k to compensate temporarily. But you don't really have to, if you don't mind a more conservative portfolio for a month.
It seems that they are tracking the same index. From my reading, there are different opinion on this if they are indeed tracking the same index.
Both of these funds state that they normally hold 80% or more in MSCI EAFE - thus both presumably track this index and are "substantially identical in my mind"
The question then becomes if I hold one fund in a 401k does that contribute to a wash sale? There seems to be one vote that this is not a wash sale.
You didn't miss anything, I think you're right on this point.
Yes. SWISX and FSPSX are both tracking the MSCI EAFE Index. I would worry about a wash sale in this case. There are others that wouldn't and the IRS has not defined "substantially identical".
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term “stock or securities” shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities.
And the IRS has not provided an exemption from this part of the tax code for any type of account.
Last edited by rkhusky on Tue Nov 20, 2018 9:17 am, edited 1 time in total.
If you consider the two funds to be substantially identical, then any purchase of FSPSX in your 401k within +-30 days of your sale of SWISX for a loss in your taxable account would create at least a partial wash sale.
Note that wash sales are not illegal. You just won't be able to fully claim the loss on your tax return.
The wash sale disallowance works on a share by share basis. If you buy 10 shares of FSPSX within the 61 day window, then the loss on 10 shares of SWISX is disallowed.
It appears to me that the general consensus in other threads is that if two funds track the same index, and in this case they do, then they are substantially identical. Therefore, TLH is not an option and I'd rather play it safe than cause my tax adviser more paperwork next year.
I also found this: https://www.irs.gov/pub/irs-drop/rr-08-05.pdf It specifically says that IRA's are included. Given the context (and this may be a gray area) I think the intent is that it also applies 401k.
I'll run this by my tax adviser to make sure, but I think I have my answer at this point. Thanks.
As usual, I'll point out that many feel rkhusky's evaluation of the tax law and IRS publications is erroneous. The IRS provides details on certain types of tax-advantaged accounts that are included (IRAs) and does not include workplace plans. It would have been simple for them to include any such plans in their Revenue Ruling that clarified the IRA situation but did not. There are many good reasons to support the lack of inclusion.
In my mind, the key wording of the Revenue Ruling has to do with the justification for wash sales in IRA, having to do with trusts where the owner has "absolute dominion". 401(k)s and the like generally do not provide that sort of control for the participant. So the reasoning for including these types of "tax-advantaged trusts" does NOT exist in the case of 401(k)s and is why they weren't mentioned in the RR.
I would add an example to support part of this statement even though I would avoid doing such an exchange as I have other choices. I have Fidelity for 403b. I asked them whether I can set the dividend distribution from my total market index fund to go to a different fund. They told me that this is not an option. Of course, this is allowed in a taxable account.
As usual, I'll point out that many feel rkhusky's evaluation of the tax law and IRS publications is erroneous.
There is no need for me to evaluate the tax law, the main points are written clearly and are fairly short. Anyone can read it for themselves.
Revenue Ruling 2008-05 said that it just applied to IRA's and not to read anything further into it. Yet, people seem driven to do just that. The yearning to minimize taxes can be so strong that reason flees.
No, that's not what the RR said. It said that IRAs count because of their nature, based on prior court rulings. You can't apply the reasoning to other accounts. If what you said were true, then all they would have needed was to say, "Yeah IRAs are your accounts. Period"
Instead, the different nature of a tax-advantaged trust was explicitly acknowledged, discussed, and shown to not be a reason for non-inclusion due to the amount of control the account holder has. That same can't be said broadly to other kinds of accounts.
The argument in the previous case was that in a trust, strictly speaking, the taxpayer does not acquire the replacement shares. But due to the control, in some trusts that becomes irrelevant. So, as the 401(k) is such a trust, you have to show that the acquisition meets the same standards. Again, strictly speaking, in a 401(k) you don't buy anything but elect your plan to buy things for you. So does the level of control meet the standards. I say no. Pointing to the law about acquisition is irrelevant if the taxpayer does not MAKE an acquisition.
No, that's not what the RR said.
If an individual sells stock or securities for a loss and causes his or her individual retirement account or Roth IRA to purchase substantially identical stock or securities within 30 days before or after the sale, is the loss on the sale of the stock or securities disallowed?
The loss on the Sale of stock is disallowed under § 1091. A’s basis in the individual retirement account or Roth IRA is not increased by virtue of § 1091(d). This ruling does not address any issues other than those specifically addressed herein. In particular, this ruling does not address (and no inference should be drawn with respect to) any issue arising under § 4975.
The RR does not address 401k's, 529's or HSA's and nothing from the ruling should be inferred about them. That leaves 26 U.S. Code § 1091 as the controlling law for those accounts, which has no exemption for any type of account, including 401k's, 529's, or HSA's.
The two things that I would infer from the ruling are 1) permanent disallowal of a loss is not sufficient to obtain a wash sale exemption and 2) a taxpayer, who causes an entity that he controls to purchase a substantially identical investment, will be treated the same regarding wash sales, as if he directly purchased the substantially identical investment.
Thank you for the correction. I had quickly used a third party site that was apparently inaccurate.
The RR does not address 401k's, 529's or HSA's and nothing from the ruling should be inferred about them.
But it does NOT say that they are included. In particular it states that tax-advantaged trusts would not normally be affected by taxation, and by extension that includes wash sales.
So WHY do you think these other tax-advantaged trustst that were NOT mentioned in the RR should be included?
In general, if you take one paragraph of the tax code and try to apply it without consideration for all of the rest the code that might affect the situation, you're doing it wrong. The way you are.
To me, it's clear that the RR is saying, "Normally tax-advantage trusts wouldn't be affected by wash sales. But sometimes they do, see this ruling. We think that IRAs are ALSO a case. And don't read anything else into it."
But you're now extending that ruling to other types of accounts without any justification. Because the code you keep pointing at doesn't say that it applies to tax-advantaged trusts. Usually nothing capital gains or losses does.
I'm not sure where you are going with this. Taxation within tax-advantaged trusts is not affected by this ruling.
Tax-advantaged trusts are not affected by wash sales. What happens within a tax advantaged trust affects the taxation of taxable accounts in relation to wash sales.
That's wrong, as was clearly mentioned in the RR. That's the purpose of the ruling because they had to show that the usual methods didn't apply to one sort of TA trust.
You continue to take a very narrow view that isn't appropriate.
That's wrong, as was clearly mentioned in the RR.
Please provide a quote from the RR on which you are basing your opinion, because I don't see anything in the RR to support that conclusion.
The only taxation of tax-advantaged trusts that I see mentioned is when money is withdrawn from the tax-advantaged trust, and even there I see no mention of wash sales affecting the taxation of withdrawals.
What is the reason for the Revenue Ruling? Why does the RR quote the previous court ruling regarding trusts and ownership? It's used to show that in the case and only in the case of IRAs is the acquisition by the trust the same as acquisition by the trust owner. Nothing else, especially no other trusts, is specifically addressed. You have not demonstrated in any fashion that acquistion in a 401(k) is the same as personal acquisition, which the code you keep quoting requires.
It's used to show that in the case and only in the case of IRAs is the acquisition by the trust the same as acquisition by the trust owner.
Now you are just making stuff up out of thin air. The original court case was not an IRA. And nowhere does the RR say that wash sales are not affected by other tax-advantaged accounts. Provide the text from RR that supports your claim.
What is the reason for the Revenue Ruling? Why does the RR quote the previous court ruling regarding trusts and ownership?
The issue starts with 26 U.S. Code § 1091 which says that a loss is disallowed if a taxpayer has acquired by purchase or by an exchange, or has entered into a contract or option to acquire, substantially identical stock or securities. This is a blanket rule that does not mention any particular account type.
The RR referred to a 1933 court case where a taxpayer sold bonds and then repurchased the same bonds in a trust. The court reasoned then that the fact that trust was different from the taxpayer (per the specific wording in the preceding statute to § 1091) was not sufficient to provide an exemption to the wash sale rule, because the taxpayer had actual command over the trust.
I conjecture that prior to the RR being published, there were a number of financial advisors and others who were either unaware of the prior court ruling that is referenced in the RR, or thought that, because IRA's and 401k's and other tax-advantaged accounts were not specifically mentioned in the court ruling, that they could use tax-advantaged accounts to evade the wash sale statute. Perhaps this was becoming wide spread and well publicized.
I do not know why the RR only addressed IRA's. Perhaps it was because that particular case was before the court. Perhaps IRA's were more commonly being used to evade the wash sale statute. It is all speculation without documented evidence. In any case, if the IRS had intended for 401k's and the like to be exempt, they could easily have said so in the RR.
In any case, the RR uses the example of IRA's to rule that, even with the resulting permanent disallowal of the capital loss, they are still involved in wash sales. And this is true, even though the IRA is not the same entity as the taxpayer.
There is no evidence that the only non-personal business structures that are subject to wash sales are IRA's and the type of trust in the 1933 case.
Nor did I say it was. The RR was not just rambling on about irrelevant things though. They used that case regarding another trust to justify their ruling about IRAs, and NOTHING ELSE. That means that 401(k) trusts are not included and you can't assume that the code about acquiring replacement shares applies.
You have to show that the taxpayer is acquiring, not the trust, within the legal definitions.
The reasoning in the case of IRAs was, like with the referenced case, that the taxpayer has nearly full control. That is arguably NOT the case with 401(k)s. So the taxpayer is not acquiring the shares. No wash.
You reasoning on why the RR was issued is, as always, not credible. There was no referenced court case. They don't do something like this if it isn't needed. The fact that they go through the prior case on trusts shows that it is an important factor to consider. For IRAs only, they have ruled. They have not ruled on 401(k)s and for I think good reason. The specific factors from the prior court case and their extension do not apply.
You haven't shown anything to the contrary, except to keep pointing at the code and ignoring the specifics of "acquisition".
Nor did I say it was. The RR was not just rambling on about irrelevant things though. They used that case regarding another trust to justify their ruling about IRAs, and NOTHING ELSE.
Right. I have said again and again that the RR only addressed IRA's and no other account type.
It means nothing of the kind. It means that 401(k) trusts were not addressed.
... you can't assume that the code about acquiring replacement shares applies.
And you can't assume that the code about acquiring replacement shares does not apply.
Pure speculation with no presented evidence. If you can cause a trust to purchase an investment, you have sufficient control of the trust to be governed by the wash sale statute.
You reasoning on why the RR was issued is, as always, not credible. There was no referenced court case.
Then our mutual speculations have like credibility.
For IRAs only, they have ruled.
They have specifically ruled on 3 account types that are included in wash sales: taxable accounts, the type of trust in the 1933 case, and IRA's. There is not a single account type that has been ruled to be exempt from wash sales.
They have not ruled on 401(k)s and for I think good reason.
They don't need to rule on every single account type. 26 U.S. Code § 1091 provides the broad application to all acquisitions by taxpayers and the 1933 court case shows that acquisitions in accounts controlled by taxpayers are also included.
The specific factors from the prior court case and their extension do not apply.
Speculation with no presented evidence.
The code, revenue rulings, and court cases are all that matter, not unsupported speculation.
Which is all you ever offer. Check that, you don't really even pay attention to the RR. There's nothing in there or in the code that indicates that the holdings in tax-advantaged trusts like 401(k)s are the same as acquisitions in fully-controlled accounts. Yet you speculate that they are. You can't even explain the reason for the RR and the citations in it, as you claim that all accounts are already part of the wash sales.
The Revenue Ruling is either superfluous or contradictory to your case. I know which one I think is the case.
If what you say is true, then the ruling would have not needed the citation of the previous case. It could have said, "Wash sales apply to all accounts controlled in any fashion by the taxpayer. This includes but is not limited to IRAs, 401(k)s, TSP, . . . "
Yet it doesn't. It very NARROWLY rules on one type only. One of a class of tax-advantaged trust, and ONLY one of such. It's not the typical IRS practice to issue misleading guidance and let it ride for years.
There's nothing in there or in the code that indicates that the holdings in tax-advantaged trusts like 401(k)s are the same as acquisitions in fully-controlled accounts.
Fully-controlled accounts is your definition, not that of the IRS. This is just speculation.
Unless the respondent is right, a trust like this one could be used deliberately to accomplish the very thing which Congress intended to frustrate. ... Although title to the bonds was acquired by the trust, actual command over the property was still in the [taxpayer]. ...The difference between acquisition by him personally and acquisition by the trust amounts only to a refinement of title and may be disregarded so far as section 214(a)(5) is concerned.
The ruling made it clear that they were discussing ONLY IRAs. Not anything else. In particular trusts that the taxpayer has full control over. You're the one that wants to extend it to other trusts without justification.
The ruling made it clear that they were discussing ONLY IRAs. Not anything else.
I agree. I've said again and again that the RR was just about IRA's. Its says nothing specifically for or against the applicability of the wash sale rule to 401k's. So, let's move on.
Unless you have some other official ruling, we are left with 26 U.S. Code § 1091 and Security First National Bank of Los Angeles, 28 BTA 289 (1933) (referenced in the RR). The latter makes clear "The difference between acquisition by him personally and acquisition by the trust amounts only to a refinement of title and may be disregarded so far as section 214(a)(5) is concerned." because "actual command over the property was still in the [taxpayer]". Recall that Section 214(a)(5) was the predecessor wash sale rule, later replaced with 26 U.S. Code § 1091.
Therefore, 26 U.S. Code § 1091 is fully applicable to 401k's, because the taxpayer has "actual command" over the account and can buy/sell within that account at will, with perhaps only minor restrictions to prevent excessive trading.
Further, dodecahedron made an interesting point in this thread viewtopic.php?f=1&t=264503&newpost=4224 ... d#p4224354, with a ruling from the Supreme Count that the burden of proof for deductions is on the taxpayer. Can you point to an applicable statute or ruling that clearly shows that deductions for capital losses should be allowed, even when substantially identical replacement shares are purchased within a 401k? That is, which statute or ruling clearly shows that wash sale rules do not apply to 401k's?
What you say is untrue. The 401(k)s are not in full command of the participant. There are limited choices in many. The frequency of contribution is controlled, often requiring one each pay period for full match. That's why many, including me, don't believe that 401(k)s were ever intended to be participants in wash sales and why they weren't mentioned in the Revenue Ruling.
For the OP, your options are broader than sit in a MM for 30 days or switch to another EAFE fund.
You could move to something like a total international fund tracking a different index (world ex-us instead of developed markets) that would likely behave mostly similarly to your current fund, but be different enough to not trigger wash sales, and allow you to capture that loss to reduce your taxes this year.
The ruling did not use the term "full command", simply "command". While those who want to use 401k's to evade wash sale rules come up with all sorts of arguments to support their ideas, they are simply exercises in imagination, until there is a definitive ruling.
The fact that the IRS was willing to permanently disallow losses when the replacement shares are in a tax-advantaged account, tells me that they are not going to be swayed by the supposed limited choices in a 401k as a reason to exempt them from wash sale rules. Or because you can only contribute via paycheck, since you can perform exchanges with little restriction at any time. The permanent disallowal is an order of magnitude more important.
And, I thought we agreed that the RR only dealt specifically with IRA's, not with 401k's.
Tax-advantage trusts are different than taxable accounts.
One type of such trust was specifically analyzed in a Revenue Ruling. The ruling did not mention any other. It says not to draw any other conclusions.
401(k)s and similar accounts are other types of these trusts.
Up until the Revenue Ruling, there was no indication that IRS or anyone else considered IRAs to be part of the wash sale process. The contemporary writings after the ruling treated this as a change in direction by the IRS. There is no indication that the IRS tried to apply the reasoning to cases that would have taken place before the ruling was issued. It seems that the ruling and the change in publications took place, and enforcement went forward from there.
The Revenue Ruling with its details indicate that such trusts are not automatically part of the wash sale process. If they were, then the Revenue Ruling either would have been simpler or more broadly-worded to include all such accounts. After all, it would be unnecessary to strictly limit the scope of the ruling to only IRAs.
So what about 401(k)s? As noted, these are not directly mentioned in the Revenue Ruling.
The question becomes, should the reasoning of the Revenue Ruling apply to these accounts? My opinion is no. These accounts come with restrictions, frequently (especially in the past) rather stringent ones. There is a limit to the types of investments and the frequency of investment. As an anecdote, in years past at my company, the plan offered only four investments: a stock index (S&P 500), a bond index, and money market, and a company stock fund.
In further opinion, the IRS does not seem to like vagueness in the regulations. While gray area can never be totally avoided, they generally prefer that taxpayers have the knowledge they need to produce accurate returns and pay the tax that is owed.
In my opinion the likelihood of the IRS issuing a Revenue Ruling addressing one type of trust while meaning other or all types is small. In spite of some popular opinion, they don't try to play games of "gotcha" with secret rules that you don't find out about until it's too late. Some obscure cases might feel that way to people, but this is not an obscure case. Millions of taxpayers have both taxable and 401(k)-type accounts. It's not a situation that can be "fixed". Once the wash sale has happened, there is not unwinding that can take place.
As they felt it was necessary to issue a ruling to let everyone know that they needed include certain types of trusts going forward, the probability is that they ONLY meant to include those and that other types were NOT meant to be included. If there is a change in thinking, a new Revenue Ruling will be forthcoming.
This is the most thorough but succinct analysis that I can provide. There is conjecture and opinion, certainly, but anyone who claims that they can demonstrate the "truth" with conjecture and opinion is not being reasonable. I have read many analyses of the situation, and none indicated that it was "factual" one way or the other.
Other people can make up their own minds. To me it's about as clear as can be without the IRS saying yea or nay specifically.
My thoughts on the matter.
The purpose of the wash sale rule is to prevent a taxpayer from benefiting from a realized investment loss, while maintaining the same economic position. So the wash sale rules require the taxpayer to change his economic position for 30 days or lose/defer the tax loss.
It is clear that taxable accounts of a taxpayer are subject to the wash sale rule according to 26 U.S. Code § 1091. Further, IRS rulings concerning wash sales have not created new law, but are just clarifications of the law. So, while 26 U.S. Code § 1091 uses the phrase "the taxpayer has acquired", the IRS has specifically clarified that this is equivalent to the taxpayer acquiring shares through his spouse's accounts, a trust that he controls, a corporation that he controls, or his IRA. The issue is not ownership of the account or how the account is titled. And, in respect to wash sales, entering "into a contract or option so to acquire" is equivalent to directly acquiring.
Revenue Ruling 2008-05 established that one cannot simply use the fact that an account is tax-advantaged to exempt that account from wash sale rules. In this ruling they clarified that a tax-advantaged account (specifically, an IRA) is subject to wash sale rules, even though doing so permanently disallows losses. This ruling was based on the above ruling (Security First National Bank) and described the taxpayer as having "absolute dominion and control" over the trust. The importance of this ruling was not so much that it was an IRA, but that it was a tax-deferred account where the loss was permanently disallowed, unlike a taxable account where the loss is simply deferred until the replacement shares are sold.
The IRS has not issued any rulings exempting any particular type of account from wash sale rules. They have issued rulings clarifying that certain account types are subject to wash sale rules. The only exception to wash sales is for dealers of stocks and securities. And that is in the law, not by IRS clarification or interpretation.
The IRS has not issued any rulings that support the idea that any perceived shortcomings (such as limited fund choices or slightly restrictive purchase schedule) in a tax-advantaged account type would be grounds to declare that account type exempt from wash sale rules.
The fact that the IRS issued a ruling clarifying that a particular account type is subject to wash sales does not mean that another account type is therefore exempt.
The Revenue Ruling could have easily mentioned that 401(k)'s and the like were exempt, but did not. Therefore, 401(k)'s and the like are subject to the wash sale rule.
The Revenue Ruling could have easily mentioned that 401(k)'s and the like were subject to the rule, but did not. Therefore, 401(k)'s and the like are exempt.
One can infer either their inclusion or exclusion from their lack of mention.
The revenue ruling ended by cautioning that nothing beyond the subject of the ruling should be inferred from the ruling.
The IRS's lack of definition of "substantially identical" has left that term ambiguous for years. The IRS's lack of a definite ruling that 401(k)'s and like accounts are/are not subject to wash sale rules is therefore not grounds to declare those accounts exempt. In fact, it wasn’t until 2008 that the IRS specifically mentioned IRA’s. Did that mean that IRA’s were not subject to wash sale rules prior to 2008? Of course not.
The number of people who are maxing 401(k)'s and IRA's and therefore need to invest in taxable accounts is small. Of those people, those that know anything about tax loss harvesting is even smaller. There was no widespread catastrophe when the IRS clarified that IRA's are subject to wash sale rules.
The IRS has consistently used the idea of control of investment selection in determining the applicability of the wash sale rule in 26 U.S. Code § 1091. The IRS has specifically cited trusts, corporations, spouse’s accounts, and IRA’s as being included in 26 U.S. Code § 1091. It is clear that taxpayers have control over investment selection in their 401k and like accounts, similar to that in other accounts that the IRS has specifically identified as being subject to wash sale rules.
Finally, as mentioned a few posts above, the Supreme Court has ruled that deductions should only be taken if there is a clear provision in the law allowing it (https://supreme.justia.com/cases/federal/us/305/281/). There is no clear provision in the law or in IRS guidance that exempts 401(k) and like accounts from wash sale rules and therefore the deduction should not be taken.
Last edited by rkhusky on Sat Jan 19, 2019 8:43 am, edited 27 times in total.
The reason I don't think that the code applies directly is as is mentioned in the Revenue Ruling. The taxpayer is not acquiring the securities directly, but by directing actions in a trust. So then you have to decide whether or not the reasoning from the Revenue Ruling also applies to the 401(k) and similar accounts. The RR itself does not apply directly.

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