1099-B Trading options Negative proceed and 8949

[trungson]

Hello,

I traded options (calls and puts) last year and Fidelity reported some of them on 1099-B as negative Proceed and zero Cost Basis. No wash sales or other adjustment code.

When I auto-imported from Fidelity into TurboTax (using Premier Desktop), it separated those negative proceed and listed them individually on 8949 (without any adjustment code) while other more regular transactions (positive proceed and positive cost basis) were combined/summarized on 1a Schedule D, which is what I typically do previous years.

As a test, I removed the auto-import from Fidelity and try manually. I tried entering a summary/total number (combined short-term covered transactions, i.e. "Box A checked") with negative Proceed, TurboTax automatically added it into form 8949 with the BrokerName and "See attached statement" (meaning I have to mail physical copy of Fidelity 1099-B after e-filing) instead of using Line 1a Schedule D.

However, if I entered a positive total/summary number (as a test, using Form mode), TurboTax transferred that number into Line 1a of Schedule D, as expected. The worksheet says "BYPASS8949"

My question is why when it's a negative proceed, TurboTax automatically uses form 8949 (it either listed individual transactions even without any adjustment/code or if summary says "See attached statement").

Why can't I enter a negative proceed in the summary (Line 1a Schedule D)?

Maybe something I'm missing. Anyone knows?

Thanks

[ReneV4 · Accepted solution]

The IRS instructions for Schedule D, Line 1a prohibit adjustments in that section. Because the IRS tax forms interpret a negative number in the "proceeds" column as an "adjustment" or an exception that requires a line-by-line audit trail, a negative number is interpreted as an exception. 

TurboTax may be requiring Form 8949 to comply with the tax code and prevent and prevent an IRS rejection because your transactions did not meet the following criteria:

• Must be a Covered Security (Box A or Box D checked)
• Cost Basis must be reported to IRS
• No adjustments or codes in Box 1f or 1g

Since you cannot technically receive negative money as a gross sale price under the standard Line 1a definition, to prevent rejection by IRS, TurboTax will use Form 8949 to provide the line-by-line detail.

When you tested a positive number, it bypassed Form 8949 because there was no "adjustment" seen.

Even though you see, "See attached statement", it does not mean that you will automatically have to mail the form, or your return, separately. If you imported the data and the individual transactions are listed on your digital version of Form 8949 sent to the IRS, you will not have to mail a paper copy. The "see attached statement" note is a default statement that TurboTax uses when adding data to a form. As long as your Form 8949 matches your 1099-B, you can e-file as usual.