Hello. I know that Wash Sales rules apply between regular taxable and IRA accounts tied to the same social security number, as well as between spousal accounts. My taxable account at Fidelity is linked to control two child's Education accounts (Taxable, not 529 accounts, kids aged 12 and 14). Each is set up with the child's own social security number, and as linked accounts, I can move money and shares freely between all thee accounts. To avoid Wash Sales disallow penalties, when I want to buy more shares of a stock for which I sold at a loss in the last 30 days, can I simply transfer money to one of my kids trade account and use their account to buy more shares? And If I sell those shares at a loss, and want to buy the same stock again (such as when Elon says something stupid, or a hot new airliner dives into the ocean), I can simply use kid #2's account to buy whatever positions I choose to replace without waiting. Am I right? I can legally circumvent Wash Sales effects by rotating through a triangle of my and my kids accounts? This seems to be an especially useful strategy to reduce tax liability at the close of the tax year. Have I found true and legit loophole in the tax code?
I will give you an educated guess. I AM NOT a tax advisor or a CPA or tax expert. I am simply giving you my personal opinion. What I am going to say is NOT tax advice or investing advice to you and is simply discussion in an internet forum. In my personal, non-expert opinion, since YOU control all three accounts and they ARE LINKED and any action done in any of the three accounts will be done BY YOU, and the fact that the kids are minors living in your household......it is my non-expert personal opinion that it is likely that you will trigger the wash sale rules and be denied the loss. You and your kids, in my personal opinion are "related parties" under federal tax law. YOU ALL live in the same household. ALL accounts are LINKED. One person, YOU will be making all the trades and decisions on the timing of the trades. Here is some discussion I pulled from an article: "1. Deferring losses on wash sales.Section 1091 on wash sales defers a loss realized by a taxpayer on a sale of stock or securities if the taxpayer replaces the loss property with substantially identical property within a 61-daywindow, extending 30 days before and 30 days after the sale. The basis for the loss is added to the basis of replacement property, however, so that the loss is allowed when the replacement property is ultimately sold.Section 1091, on its face, requires repurchase of the replacement property by the same taxpayer. If a closely related taxpayer buys the replacement property, the courts have sometimes been willing to treat the replacement as an indirect sale to the related party, even though the sale and replacement are both transactions on a public market. Section 267(a)(1) disallows losses on director indirect sales to specified related parties. In McWill-iams v. Commissioner, 331 U.S. 694 (1947), for instance, the taxpayer directed his broker to sell blocks of stock he held in his own name and to buy the same stock in his wife’s name. The taxpayer managed his wife’s separate estate.The Supreme Court held that the sales were indirect sales to his spouse." and "Under current law, loss on a sale from a parent to a child is disallowed under section 267(a)(1) and (b), but a replacement by a child who is not in the household is not always disallowed.Cote v. Helborn,5 for instance,allowed a father to take a loss on a sale, although he loaned his son the money to repurchase the same stock the next day." My Comment: You and your kids are definately "RELATED PARTIES" under the federal tax laws. If we are talking BIG money I personally would NOT want to bet on what you are planing to do unless I was prepared to have the loss denied and eat the taxes. AS I SAID JUST MY PERSONAL OPINION....I DO NOT HAVE ANY PARTICULAR EXPERTISE AND AM NOT GIVING YOU LEGAL, TAX, OR INVESTING ADVICE. IF THIS IS CRITICAL TO YOU THAN GO CONSULT WITH A CPA OR TAX ATTORNEY. Seems like a lot of flailing around and effort to me to try to avoid a small amount of tax unless you are talking BIG NUMBERS and if so you can afford to see a tax attorney and not be looking for LEGAL ADVICE on an internet forum. Do what you want.....I AM NOT GIVING YOU ADVICE IN THE SLIGHTEST......but if you are talking big numbers or even small numbers is it worth the risk of triggering an IRS audit? DISCLAIMER: DO NOT DO ANYTHING BASED ON WHAT I POSTED......I AM NOT AN EXPERT AND AM NOT GIVING YOU AN OPINION THAT YOU SHOULD RELY ON.....I AM NOT GIVING YOU LEGAL OR TAX OR INVESTING ADVICE.
No I don't think it would trigger an IRS audit, because they have no idea of what I bought or sold, nor on what dates or at what costs. Its not my intention to violate the Wash Sale rule but to find allowable circumvents, but it appears none is readily apparant. The information on related parties is helpful. Interesting that case history establishes that it ensnares not only spouses and children, but also the primary's parents and even their own siblings (if the transactions are pre-planned and coordinated). Not seeking free and therefore extremely unreliable legal advice from the internet, but seeking understanding. It would be fool hardy and a waste of money to approach a tax attorney (such as in this case) without first completing some level of self guided research. Internet forums are good for that. Somebody out there will want to prove a point, will gather the resources to prove the point. Others may disagree and choose to find and present opposing information. I benefit from this efficient form of gaining multiple viewpoints (complete with tax code citations), all with no effort and output on my part. I assume you responded because you have an interest in sharing your understanding of my query. Its a win for both of us.
For some reason, it seems to me that sooner or later they will find out about this, the "loophole" as you said will be closed. And in any case, you will not be able to become a really good specialist in programming, for example, because you will constantly look for workarounds. To become a good specialist, you need to learn, constantly learn. For example, when I was a student, we had a lot of theory at the University, and the family had little money to pay for additional classes. Then I found the guys from spotoclub.com which for a small amount helped me pass the final exams. Now I work in a large IT company and I understand that if they hadn't been helped me, I would not have been what I am now.
