Bullion vs. IAU vs. GTU for Tax Loss Harvesting

[Greg]

Let's say you have a lot of money in Bullion and the price drops below the 15% band (or 40% loss if held at 25% portion). Is selling the bullion for the tax loss harvesting and then purchasing IAU right afterwards and rebalancing considered as part of a wash sale? The same question going for bullion to GTU or IAU to GTU. (essentially any combination between those three).

[MediumTex]

I am a tax attorney, though this should not be taken as legal advice:

Is the argument you are suggesting one that you could make with a straight face to an IRS auditor?  I don't think I could.

You have to keep in mind the operational realities of any legal strategy you are contemplating.  If the enforcement agency you are dealing with won't appreciate the logic in your approach, even if it is technically sound it doesn't necessarily mean it's a good thing to actually do.

The question you really, really, really don't want to be asked by an auditor about the strategy outlined above is "Why did you engage in this series of trades?"  The problem is that this is normally the first question an auditor will ask because it will be pretty obvious what you are doing.  If you answer honestly and say "I was trying to skirt the wash sale rules", the rest of the audit is probably not going to go well.

The trick is to conduct your affairs so that the authorities don't bother you, not to win an argument with them once you have attracted their attention.

I just offer that perspective based upon firsthand experience with this sort of thing.

[Greg]

I am a tax attorney, though this should not be taken as legal advice:

Is the argument you are suggesting one that you could make with a straight face to an IRS auditor?  I don't think I could.

You have to keep in mind the operational realities of any legal strategy you are contemplating.  If the enforcement agency you are dealing with won't appreciate the logic in your approach, even if it is technically sound it doesn't necessarily mean it's a good thing to actually do.

The question you really, really, really don't want to be asked by an auditor about the strategy outlined above is "Why did you engage in this series of trades?"  The problem is that this is normally the first question an auditor will ask because it will be pretty obvious what you are doing.  If you answer honestly and say "I was trying to skirt the wash sale rules", the rest of the audit is probably not going to go well.

The trick is to conduct your affairs so that the authorities don't bother you, not to win an argument with them once you have attracted their attention.

I just offer that perspective based upon firsthand experience with this sort of thing.

Thank MediumTex, that seems to clear up a lot. I've thought the same things about EEM and VWO. I own both right now and will be selling a portion of my EEM since VWO has a lower expense ratio. They both track the same index but again it seems like it would be YOU vs. AUDITOR. And I don't think I can really win that argument.

Even though it probably wouldn't happen, it'd be nice if there was an IRS website or something that you could put two securities in (such as VWO and EEM) and it will state whether these two are correlated enough to violate the wash sale since the rules still seem quite murky to me.

But maybe that's just a dream...

[MediumTex]

I am a tax attorney, though this should not be taken as legal advice:

Is the argument you are suggesting one that you could make with a straight face to an IRS auditor?  I don't think I could.

You have to keep in mind the operational realities of any legal strategy you are contemplating.  If the enforcement agency you are dealing with won't appreciate the logic in your approach, even if it is technically sound it doesn't necessarily mean it's a good thing to actually do.

The question you really, really, really don't want to be asked by an auditor about the strategy outlined above is "Why did you engage in this series of trades?"  The problem is that this is normally the first question an auditor will ask because it will be pretty obvious what you are doing.  If you answer honestly and say "I was trying to skirt the wash sale rules", the rest of the audit is probably not going to go well.

The trick is to conduct your affairs so that the authorities don't bother you, not to win an argument with them once you have attracted their attention.

I just offer that perspective based upon firsthand experience with this sort of thing.

Thank MediumTex, that seems to clear up a lot. I've thought the same things about EEM and VWO. I own both right now and will be selling a portion of my EEM since VWO has a lower expense ratio. They both track the same index but again it seems like it would be YOU vs. AUDITOR. And I don't think I can really win that argument.

Even though it probably wouldn't happen, it'd be nice if there was an IRS website or something that you could put two securities in (such as VWO and EEM) and it will state whether these two are correlated enough to violate the wash sale since the rules still seem quite murky to me.

But maybe that's just a dream...

That's not how the IRS works. 

They want things to be murky so that people will err on the side of conservatism and their field agents will have an opportunity to get promoted because they will always be able to find issues in any audit.

If there were clear lines, a much small enforcement apparatus would be needed.

[Greg]

That's not how the IRS works. 

They want things to be murky so that people will err on the side of conservatism and their field agents will have an opportunity to get promoted because they will always be able to find issues in any audit.

If there were clear lines, a much small enforcement apparatus would be needed.

[cabronjames]

Even though it probably wouldn't happe}n, it'd be nice if there was an IRS website or something that you could put two securities in (such as VWO and EEM) and it will state whether these two are correlated enough to violate the wash sale since the rules still seem quite murky to me.

But maybe that's just a dream...

That's not how the IRS works. 

They want things to be murky so that people will err on the side of conservatism and their field agents will have an opportunity to get promoted because they will always be able to find issues in any audit.

If there were clear lines, a much small enforcement apparatus would be needed.

sad.  sounds like an inefficient non-productive welfare/scam to benefit the IRS employees, & the tax lawyers/accountants fighting the IRS, who jointly robbing Avg Joe Taxpayer.  The IRS-Tax Lawyer-Industrial Complex?

[Greg]

sad.  sounds like an inefficient non-productive welfare/scam to benefit the IRS employees, & the tax lawyers/accountants fighting the IRS, who jointly robbing Avg Joe Taxpayer.  The IRS-Tax Lawyer-Industrial Complex?

Shhhh! We gotta be quiet since MediumTex could be listening and we don't want to upset the tax attorney. I can't risk someone high up having a grudge against me for questioning the system and auditing me. I'd fare probably pretty poorly in prison hah.

But understandable, I'd love if the system would be more more efficient. Sadly, it just might not happen for a while since you'd have to motivate a lot of people to vote those things away. People just don't seem to care enough so business as usual.

But maybe I'm just pessimistic.

[Ad Orientem]

This is where I tend to fallback on the old KISS rule (keep it simple stupid). Avoid complicated schemes of any kind with money. The tend to end badly. Where taxes are concerned, if there is an unambiguously legal way to reduce your tax bit then certainly take advantage of it. Otherwise don't do anything that could draw unwanted attention from the revenue boys. They are not known for their sense of humor and they have the power to make your life miserable if they are so inclined. Just pay your taxes and bitch about it in the bar like everybody else.

[Greg]

Just pay your taxes and bitch about it in the bar like everybody else.

I just wanted to say that way a great quote.

But that's a good way to think about it. I like the idea of tax loss harvesting a lot but erring on the side of caution is always a good thing when you're dealing with the tax man.

[MediumTex]

sad.  sounds like an inefficient non-productive welfare/scam to benefit the IRS employees, & the tax lawyers/accountants fighting the IRS, who jointly robbing Avg Joe Taxpayer.  The IRS-Tax Lawyer-Industrial Complex?

Shhhh! We gotta be quiet since MediumTex could be listening and we don't want to upset the tax attorney. I can't risk someone high up having a grudge against me for questioning the system and auditing me. I'd fare probably pretty poorly in prison hah.

But understandable, I'd love if the system would be more more efficient. Sadly, it just might not happen for a while since you'd have to motivate a lot of people to vote those things away. People just don't seem to care enough so business as usual.

But maybe I'm just pessimistic.

I'm just a pragmatist at heart and I would rather walk around the mountain than try to tunnel through it.

I didn't make the system the way it is.  It was stupid when I showed up.  I just try to help my clients (and friends) stay out of trouble.

[MediumTex]

Even though it probably wouldn't happe}n, it'd be nice if there was an IRS website or something that you could put two securities in (such as VWO and EEM) and it will state whether these two are correlated enough to violate the wash sale since the rules still seem quite murky to me.

But maybe that's just a dream...

That's not how the IRS works. 

They want things to be murky so that people will err on the side of conservatism and their field agents will have an opportunity to get promoted because they will always be able to find issues in any audit.

If there were clear lines, a much small enforcement apparatus would be needed.

sad.  sounds like an inefficient non-productive welfare/scam to benefit the IRS employees, & the tax lawyers/accountants fighting the IRS, who jointly robbing Avg Joe Taxpayer.  The IRS-Tax Lawyer-Industrial Complex?

Of course it's an inefficient non-productive scam....it's the government.

That's what the government is...the ultimate "protection" racket.

Note, though, that my motives for participating in the racket are hardly to participate in the theft.  I see myself as helping to prevent a small part of the theft and that is actually quite rewarding.

I work in the retirement plan area (retirement plan compliance is driven almost exclusively by tax issues), so the theft in my world is a bit more subtle and the prevention of the theft is a bit more refined than in other areas of the tax field.

I really think, though, that the attorneys who help private companies keep more of their own money from being arbitrarily confiscated by the taxing authority are not participating in the scam so much as they are trying to minimize the damage that results from the scam.

If you want to see a public/private sector scam, look at the "petty criminal/police officer/probation officer/district attorney/prison guards union/prison contractor/popularly elected judge" complex.  That's the judicial equivalent of a "catch and release" program that does make a lot of work for a lot of people doing something that is basically pointless--i.e., locking people up for dumb minor offenses and making sure that once released they will soon be locked up again for some other dumb minor offense.

[Xan]

MediumTex, do you happen to practice in the Austin area?

[MediumTex]

MediumTex, do you happen to practice in the Austin area?

Dallas.

[Greg]

Of course it's an inefficient non-productive scam....it's the government.

That's what the government is...the ultimate "protection" racket.

Note, though, that my motives for participating in the racket are hardly to participate in the theft.  I see myself as helping to prevent a small part of the theft and that is actually quite rewarding.

I work in the retirement plan area (retirement plan compliance is driven almost exclusively by tax issues), so the theft in my world is a bit more subtle and the prevention of the theft is a bit more refined than in other areas of the tax field.

I really think, though, that the attorneys who help private companies keep more of their own money from being arbitrarily confiscated by the taxing authority are not participating in the scam so much as they are trying to minimize the damage that results from the scam.

If you want to see a public/private sector scam, look at the "petty criminal/police officer/probation officer/district attorney/prison guards union/prison contractor/popularly elected judge" complex.  That's the judicial equivalent of a "catch and release" program that does make a lot of work for a lot of people doing something that is basically pointless--i.e., locking people up for dumb minor offenses and making sure that once released they will soon be locked up again for some other dumb minor offense.

I think that's the way I'd like to rationalize it to myself about my future job. I'll start work as an engineer for a research lab for the army in aberdeen, md in July. I still feel a little bad about being paid not as a producer of goods and services like most companies but more of a facilitator of helping the HUGE customer (i.e. U.S. Army) to get everything they want. Ideally, I'll be able to work hard enough to save the taxpayers as much money as they are paying me. But we'll see how that goes.

[MediumTex]

Of course it's an inefficient non-productive scam....it's the government.

That's what the government is...the ultimate "protection" racket.

Note, though, that my motives for participating in the racket are hardly to participate in the theft.  I see myself as helping to prevent a small part of the theft and that is actually quite rewarding.

I work in the retirement plan area (retirement plan compliance is driven almost exclusively by tax issues), so the theft in my world is a bit more subtle and the prevention of the theft is a bit more refined than in other areas of the tax field.

I really think, though, that the attorneys who help private companies keep more of their own money from being arbitrarily confiscated by the taxing authority are not participating in the scam so much as they are trying to minimize the damage that results from the scam.

If you want to see a public/private sector scam, look at the "petty criminal/police officer/probation officer/district attorney/prison guards union/prison contractor/popularly elected judge" complex.  That's the judicial equivalent of a "catch and release" program that does make a lot of work for a lot of people doing something that is basically pointless--i.e., locking people up for dumb minor offenses and making sure that once released they will soon be locked up again for some other dumb minor offense.

I think that's the way I'd like to rationalize it to myself about my future job. I'll start work as an engineer for a research lab for the army in aberdeen, md in July. I still feel a little bad about being paid not as a producer of goods and services like most companies but more of a facilitator of helping the HUGE customer (i.e. U.S. Army) to get everything they want. Ideally, I'll be able to work hard enough to save the taxpayers as much money as they are paying me. But we'll see how that goes.

Through all of history, wealth has been obtained through three basic methods:

1. Conquest (i.e., taking it from someone else);
2. Inheritance (i.e., having it given to you by someone else); or
3. Production (i.e., you start with nothing and make something of value).

What you are going to be doing will be assisting partially with 1. and partially with 3.

The U.S. military is basically a mercenary force with the blended goals of (1) protecting existing U.S. economic interests, and (2) expanding those economic interests through the installation and maintenance of cooperative regimes in places where we would like to be doing more business. 

It's quite interesting the way the initially political military deployment in the wake of the 9/11 attacks (i.e., Afghanistan) quickly morphed into an economic deployment (i.e., Iraq).

I think that militaries throughout history have mostly served as mercenary forces for the economic interests of the political institutions in society.  What is sort of unfortunate is that soldiers are trained to ovecome their natural distaste for killing other people by being convinced that what they are engaged in is a matter of "good vs. evil", as opposed to a more realistic conflict of economic interests without a really well-defined dimension of "good" or "evil." 

Occasionally you will find that truly evil person that can make a nice "other" for purposes of galvanizing a society and consolidating political control at home, but even the people we think of as "evil" have a troubling tendency to be viewed as heroes at other points in history not too far removed from their "evil" period.

Two cases in point:

1. Adolf Hitler.  Time magazine's 1938 "Man of the Year".



A few years later, however, Hitler was occupying a very different place in the American mind.

2. Osama bin Laden.  When "Rambo 3" came out in 1988 they were looking for some heroes for Rambo to team up with to fight evil.  Guess where they went?  To Afghanistan where Rambo basically partnered with what would have been Osama bin Laden's colleagues to fight the evil Ruskies.



A few years later, however, bin Laden and his Afghanistan colleagues were occupying a very different place in the American mind.

[Greg]

Very interesting post MediumTex. Ideally I'd rather get into #3 as much as possible but I had a scholarship for grad school through the government so I'll be working for them for at least 2 years. I'm just trying to hopefully do something positive with taxpayers money and see how long I enjoy being there. Plus as said before on this forum, their 401k-ish plan is pretty good. Very low expense ratios and their G fund seems very enticing as a cash-portion play.

[Greg]

Also for those interested, the ideas of this thread are both in here and in the Physical Gold and Taxes thread. Not sure if it would be worthwhile for a merging of the two threads.

[cabronjames]

MT, imho you are super productive & also altruistic in your comments on this forum, as the Yoda/wiseman of this PP community.  Thank you, sir.

[MediumTex]

MT, imho you are super productive & also altruistic in your comments on this forum, as the Yoda/wiseman of this PP community.  Thank you, sir.

I'm just glad I have a place to write all this stuff down.

I appreciate all the people here and it's a lot of fun to be able to write things that people seem to enjoy reading.