Vanguard incorrectly reports wash sale losses

[sagetek]

When receiving Vanguard EOY forms, they do not correctly report losses on closed out positions on stocks. I have talked to them about this and they say talk to your accountant. I have wash sales, that were completely closed out for over 30 days before the end of the year, and NEVER replaced. But the vanguard reports have no way to report this. They simply disallow the wash sale in calculations. How do I rectify when filing tax return without causing an audit? I know the amount of disallowed loss, but how do I enter it! Please help. Substantial loss. Calculations complicate, but since never replaced stock, why can't I ignore the wash sale amount?

[fanfare]

You don't change your wash sales.

Your broker raises the basis of some of the identical securities in your account  by the amount of the disallowed loss.

Eventually (if you are trading) those will be sold also.

This is all required by the IRS for covered transactions.

The only way this wouldn't happen is if you are buying and selling identical securities at different firms.

Then you have to do the adjustment yourself.

[fanfare]

If your broker does not report your transactions correctly as required by the IRS   (unlikely) , change brokers.

[sagetek]

It is Vanguard.....they say consult a tax accountant. Problem is they file the IRS forms showing the disallowed loss. How do you reconcile that? Already done.

Thanks

[sagetek]

That is correct....but if never repurchase the security, they still show the loss as "wash sale".

Thanks

[fanfare]

" consult a tax accountant." is just a polite way of saying - Don't bother us.

[fanfare]

" if never repurchase the security, they still show the loss as "wash sale". "

Repurchase is irrelevant. Not sure what you mean by "never repurchase."

Wash sale is triggered by purchase of more of the identical security around the time that you  sold some at a loss.

Even if you close out (sell) those additional shares in the same tax year, (or do not), the broker will still report the wash sale with a disallowed loss. They must.

I explained that above.

[fanfare]

You want the broker to make it look like there were no wash sales because you no longer hold any of that security at the end of the year,

Well, it just doesn't work that way.

[NCperson]

@fanfare @sagetek - let me see if I can create an example as I suspect Vanguard is doing it correctly but there is a misunderstanding on how this settled out: 

• I buy 10 shares of ABC company for $100 on Oct 1.  My cost basis is $1000 
• I sell those same 10 shares of ABC Company for $50 on Nov 28.  My tax loss is $500
• However, I turn around and buy 10 shares of ABC Company at $70 on Nov 30.  My cost basis is $700.  That creates a wash sale! So the $500 loss I created on Nov 28 is negated and my adjusted cost basis on this new lot is adjusted upwards by the $500 to $1200.
• On Dec 2, I sell the 10 shares I own in ABC Company for $75 per share.  Since my adjusted cost basis is $1200 and my proceeds are $750, my tax loss is $450.  
• I do not buy any more shares of this company.

let's summarize: 

two purchases: $1000 for the first purchase and $700 for the 2nd purchase

two sales: $500 in proceeds for the 1st sale and $750 for the 2nd sale

$1000+ $700 - $500 - $750 = $450 loss..... which is the same tax loss I noted above!

I suspect Vanguard reported it correctly (they are too big to have millions of people complain!)

[gfunkbigdaddy]

"they are too big to have millions of people complain" is your response?  That's neither a helpful response, nor an intelligent one.

 Yes, the IRS makes the guidelines, but that's a cop out response when Vanguard still executes the wash sale reversal!  They don't execute wash sale reversals for "similar" funds/ETFs that would violate the IRS's rules, only on the exact same security, so why are they choosing to follow part of the IRS rules? They need to pop up a warning to the customer when they either (1) execute a sell order that will violate the wash sale rules, or (2) execute the second buy that violates the rules as well.  Problem is, their website isn't designed (or encourages) active trading within a 30-60 day windows.  That's why I'm moving to another institution, especially in these times of volatility where every capital loss matters!

[NCperson]

Are you sure you understand 'wash sale' rules?

you state you NEVER repurchased the security and if you look closely at my example, your tax loss across the multiple lots is correct at year end!

as @fanfare  states and my example shows, your cost basis is adjusted upwards but since you no longer own the security, it all 'washes' out and you are in the same tax loss position! LOOK AT MY EXAMPLE CLOSELY.

[fanfare]

Enter your triggering transaction at another brokerage firm.

They don't talk to each other, and your wash sale loss will not be disallowed on your 1099-.

Note: if you file this way, you are filing an incorrect tax return.

If you move your account from Vanguard to another broker, you'll find out they report wash sales correctly also.

[Dan415]

I worked for 2 big name IT consulting firms and 1 big name bank. The job of my team was to fix the always messed up billing and accounting systems at various client companies, as well as to fix the billing / accounting of interest rates / finance charges / fee calculations / penalties charged to credit card customers / loan customers of this very large bank.

Many of these calculations are very complicated to code into software, and even after extensive testing, people find errors. Then when it seems that everything is working, if the rules or regulations change, everything is broken again.

At the large bank, it was so complex that at any given time, more than 2 million accounts out of 6.5 million were always getting overcharged or billed improperly. We would do our best to fix those accounts, but we never got them all. The bank just waited for people to notice and call customer service to complain and then try to fix the accounts one by one. It’s very likely that you have been a part of a Class Action Settlement with one of these companies and received some sort of check.

So what are the chances that your 1099B is incorrect? Actually quite high. I get amended 1099s all the time, and have had to personally call in several times when I noticed errors to get the 1099s fixed. In 2019 I got 3 versions of my 1099B from Etrade- the original and 2 amended…

The IRS could care less about this problem getting fixed. There can only be an overpayment of taxes as a result of this, never an underpayment of taxes.