Wash Sales with Replacement by Related Parties

In a realization system, taxpayers have an incentive to sell loss property from a diversified portfolio and hold gain property. With no limitations on selective loss sales, the effective tax rate on an appreciating portfolio is less than zero. Replacements by related parties are now sometimes treated as “fake dispositions” under the facts and circumstances step transaction doctrine, collapsed or not according to whether the sale and replacement are part…
Andrews & Kurth Centennial Professor of Law, University of Texas at Austin - School of Law, USA
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