It turns out that Fidelity is reporting it correctly - with a caveat. The reason, it causes a confusion is because when I did the share recapture - it was a higher number which was sold at a later date. However, when Fidelity does the reporting it does not use the original acquire date. It changes the acquire date for the shares. I don't what algorithm is used to change the acquire date. At any rate, I was able to account for the disallowed loss. This was resolved by opening a ticket against their cost basis team. Regular CSS agents were not able to explain it.
@Mike9241 Thanks for your suspicion. It would have been quite unlikely that Fidelity got it wrong. However, their reporting caused the confusion.
