July 19, 1989
TO: TAX MEMBERS NO. 25-89
ACCOUNTING/TREASURERS COMMITTEE NO. 24-89
OPERATIONS MEMBERS NO. 21-89
TRANSFER AGENT SHAREHOLDER ADVISORY COMMITTEE NO. 17-89
RE: COURT DECISION ON ADEQUATE IDENTIFICATION OF SHARES
REDEEMED
__________________________________________________________
The attached Tax Court decision, Hall v. Commissioner,
considers what constitutes adequate identification for purposes
of permitting a regulated investment company (RIC) shareholder to
adopt an accounting method other than first-in, first-out in
computing gain or loss on the redemption of RIC shares. The
taxpayer in Hall did not designate which shares were to be
redeemed when he called the RIC's transfer agent nor did the
taxpayer send any written instructions indicating such a
designation. The taxpayer's accountant merely prepared
transaction summaries at year-end using the last-in, first-out
method of accounting to compute gain or loss.
The Court noted that it could "see no valid reason ... to
permit a stock trader to wait until the end of a year to allot
specific sales to his general inventory of stocks in such a
manner as to be most beneficial to him tax wise." Consequently,
the Court held, because the taxpayer never told the transfer
agent or the RIC which shares were to be redeemed, the taxpayer
had not met the requirements for adequate identification set
forth in Section 1.1012-1(c) of the Treasury's regulations.
We will keep you informed of developments.
Keith D. Lawson
Assistant General Counsel
Attachment