rr-08-05.pdf

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# Part I

Section 1091 .- Loss from Wash Sales of Stock or Securities

26 CFR 1.1091-1: Losses from wash sales of stock or securities.

Rev. Rul. 2008-5

## ISSUE

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?

FACTS

A, an individual, owns 100 shares of X Company stock with a basis of $1,000.
On December 20, 2007, A sells the 100 shares of X Company stock for $600 (the
"Sale").

On December 21, 2007, A causes an individual retirement account (within the
meaning of § 408) or a Roth IRA (within the meaning of § 408A), established for the
exclusive benefit of A or A's beneficiaries, to purchase 100 shares of X Company stock
for its then fair market value (the "Purchase").

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A executes the Sale and the Purchase with different, unrelated market
participants.

A is not a dealer in stock or securities.

# LAW AND ANALYSIS

Under § 408(a), the term "individual retirement account" means a trust created or
organized in the United States for the exclusive benefit of an individual or his
beneficiaries, but only if the written governing instrument creating the trust meets certain
other requirements.

Under § 408(e)(1), generally, an individual retirement account is exempt from
taxation.

Under §§ 408 and 72, any amount distributed from an individual retirement
account is includible in the distributee's gross income for the year of the distribution
unless it is properly allocable to the account owner's basis in the account. Under
§ 408A, a similar income inclusion rule applies to nonqualified distributions from a Roth
IRA. An individual has basis in an individual retirement account only to the extent that
the account includes nondeductible contributions.

Section 1091(a) provides that 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

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securities, then no deduction shall be allowed under § 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.

Section 1091(d) provides rules for determining the basis of stock or securities the
acquisition of which resulted in the nondeductibility under § 1091 (or corresponding
provisions of prior law) of the loss from the sale or other disposition of substantially
identical stock or securities.

In Security First National Bank of Los Angeles, 28 BTA 289 (1933), the taxpayer
sold bonds (at a market price) to a corporation of which the taxpayer was the sole
shareholder. On the same day, in exchange for land, the corporation transferred the
same bonds at the same price to a trust over which the taxpayer had absolute dominion
and control. In finding that § 214(a)(5), the predecessor to § 1091(a), applied to
disallow the loss, the court reasoned as follows:

The [taxpayer] did not personally reacquire substantially identical property and,
strictly construed, the language of section 214(a)(5), above referred to, might not
apply. However, the rule of strict construction should not be unduly pressed to
permit easy evasion of a taxing statute. Carbon Steel Co. v. Lewellyn, 251 U.S.
501. 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.

Security First National Bank, 28 BTA at 314 - 315.

Applying this reasoning to the facts of this ruling, even though an individual
retirement account is a tax-exempt trust, A has nevertheless acquired, for purposes of

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§ 1091(a), 100 shares of X Company stock on December 21, 2007, by virtue of the
Purchase. See also Shoenberg v. Commissioner, 77 F. 2d 446 (8th Cir. 1935).
HOLDING

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.

# DRAFTING INFORMATION

The principal author of this revenue ruling is Roger E. Wade of the Office of
Associate Chief Counsel (Financial Institutions & Products). For further information
regarding this revenue ruling, contact Mr. Wade at (202) 622-3950 (not a toll-free call).