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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Is there any exception to the rule that states that the date

Customer Question

Is there any exception to the rule that states that the date used for recognition of a gain or loss on the sale of a security is the settlement date?
Submitted: 7 years ago.
Category: Tax
Expert:  Ed Johnson replied 7 years ago.



Thank you for your question.


There used to be a law that allowed you to choose the date in which to treat the gain or loss of securities sells, if the date of sell was different than the settlementn date or date of receiving the revenues. However:


The Tax Reform Act of 1986 (TRA) added Sec. 453(k), which requires that income and loss on publicly traded securities be recognized in the year of disposition (trade date).


form the IRS website we find that:


Sec. 453(k) provides that any installment obligation arising out of a sale of stock or securities traded on an established securities market is not eligible for the installment method of reporting income under Sec. 453(a), and all payments to be received will be treated as received in the year of disposition. The TRA Senate Report stated that for sales made on an established market, if cash settlement of transactions customarily occurs several business days after the date on which a trade is made, gain or loss will be recognized for Federal income tax

purposes by both cash and accrual method taxpayers on the date the trade is executed.

What this means is that the former alternative methods have all become obsolete. You can no longer treate gains in the following ways:

  1. Rev. Rul. 82-227: gain realized on the sale of stock was eligible for treatment under the installment method of accounting.
  2. Rev. Rul. 78-270: gain from the sale of stock was taxable in the year the sale proceeds were received.
  3. Rev. Rul. 70-344: losses resulting from the sale of stocks and bondes were recognized in the year of sale rather than the year of delivery.

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