Recent Developments


Wash sale Rules:

These rules prevent you from claiming a tax loss on selling a stock if shortly before or after that sale you've acquired substantially the same stock. The rationale is you haven't really realized a tax loss if you still own substantially the same stock.

The IRS has just expanded the reach of the Wash Sale rules under Code Section 1091.  You cannot deduct a tax loss on the sale of any securities if, within a period 30 days before the sale through 30 days after the sale, you acquire substantially identical securities. A recent ruling has held that if you sell securities for a loss and have your IRA or Roth IRA purchase substantially identical securities within 30 days before or after the sale, you will not be able to claim the tax loss on the sale of the securities. Rev. Rul. 2008-5, 2008-3 IRB. Further, your tax basis in your IRA or Roth IRA will not be increased under IRC Sec. 1091(d) .


Innocent Spouse Relief:

A husband and wife are jointly liable for the tax on any joint income tax return. However, if you can demonstrate that you did not know, or have reason to know, of your spouse's tax hanky panky, you can get off the tax hook. This "out" is known as innocent spouse relief.  IRC Sec. 6015.


Innocent spouse relief is an issue in divorces when one spouse seeks to avoid the tax liability for the misdeeds of an ex-spouse. Unfortunately, it's not easy to qualify for relief. You have to demonstrate that you filed a joint income tax return and the tax understatement was due to the erroneous items of your spouse. You must show that you did not know, or have reason to know, of the problem. Finally, it must be unfair to hold you responsible. In a recent case the wife, who was college educated, had access to joint financial accounts, balanced the couple's checkbook, and was aware of the couple's ownership of limited partnership interests that trigged the tax understatement, didn't qualify. The court felt she did not meet her duty to inquire into the transactions. Robert Golden, et ux. V. Comr. (2007) TC Memo 2007-299.

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