Question

Under IRS rules, if a customer selling shares of stock wishes to use specific identification instead of FIFO for cost basis reporting, the broker-dealer effecting the trade must be notified of this no later than: A Trade date B Settlement date C December 31st of that year D April 15th of the following year

Answer 1

Answer:

B Settlement date

Explanation:

The  INTERNAL REVENUE SYSTEM under the publication 550: Investment Income and Expenses(including capital gain and losses)

determinates the legal requirement to determinate the cost basis for shares.

When the investor can identify which shares of stock are being sold

the basis is what was paid for the shares plus other cost.

This is important when the investor makes purchases of shares in different time period at different times.

Selling shares with loner than 2-years generates a long-term capital gain while below 2-years are short-term

Also, the cost determinates how much is the gain per share.