Fundamentally, section 1259 does not address directly the true abusive practices involved in the Lauder transaction--the ability to sell short against the box indefinitely without any possibility of being squeezed;(17) the opportunity to obtain the proceeds from the short sale against the box before the transaction is closed;(18) and, finally, the combination of Revenue Ruling 72-478(19) and section 1014 of the Internal Revenue Code ("the Code").
Finally, the sixth part offers a paradigm, the Related Individual--Income With Respect to a Decedent Rule, that more appropriately addresses and alleviates the abuses that can occur when particular investors sell short against the box.
When an investor sells short against the box, he owns the security or a similar marginable security being sold short but elects to borrow the identical security from a third party rather than deliver the security he already owns (i.
67) Subsequently, as part of the IPO, the Trust sold these shares short against the box to the public at an offering price of $26 per share.
Like his mother, Ronald used the short against the box loophole to perfection.
Theoretically, the average investor should be able to enjoy the same tax benefits that the Lauders are experiencing: specifically, a perpetual short sale against the box plus retention of the proceeds from the short against the box transaction.
If the short seller actually owns the stock but borrows it anyway, that kind of sale is called a short against the box.
Using a short against the box - selling borrowed stock the investor actually owns for future delivery - allows investors to raise cash for diversification and lock in a gain.
Effective for constructive sales after June 8, 1997, the TRA '97 removed from sophisticated investors the tax-deferral component inherent in "selling short against the box
," futures contracts, forward contracts, equity swaps and notional principal contracts.
Thus, an investor who sells 100 shares of XYZ stock short against the box and closes the sale at a gain by delivering 100 shares of XYZ stock he has held for more than one year generally will recognize a long-term capital gain.
73-524, an individual sold 200 shares of stock short against the box.
As a result, if an investor sells appreciated stock short against the box and does not close the short sale before he dies, the investor's heirs can close the short sale and avoid paying any income tax on the unrealized appreciation in the stock used to close the short sale.