What are the requirements to not report all stock transactions on the tax return 1099-B?

Question

I have been trading in 2017 on Robinhood. The 1099-B file they sent me has 500+ pages. When I requested a CSV file, I see just little less than 2000 lines. Export from Robinhood to TurboTax, TaxAct, etc only allows up to 500 transactions - therefore, in my case the import fails.

While trying out H&R Block, the import failed, but in the following steps in prompted with this option:

The IRS offers a shortcut if you have a lot of sales to report. You can enter them as a group instead of individual sales.

You can use the shortcut only for sales for which these apply:

• Your broker reported the basis to the IRS on Form 1099-B.
• You don't have any adjustments, like wash-sale losses or a basis correction.
• They're all one of these: Short-term (held one year or less), Long-term (held more than one year)

But the 1099-B summary page I have shows only Short-Term (third option), and broker-reported to the IRS (first option). But I believe I do have adjustments as per the picture below:

Question is, can I file only the summaries? Is that only form 8949? What to do with the PDF file as TaxAct allows only 2MB file limit attachment and I was only able to reduce it to 9MB (any recommendations?)?

Answer 1

Per the instructions for Form 8949, there are two exceptions to reporting all transaction on separate rows of Part I and Part II of Form 8949 which are available to individual tax payers.

The wash sales require you to make adjustments to the basis, so you do not qualify for Exception 1.

Exception 2, however, allows you to report the transaction on attached statements in a similar format to Parts I and II: (my emphasis, below)

Exception 2.

Instead of reporting each of your transactions on a separate row of Part I or Part II, you can report them on an attached statement containing all the same information as Parts I and II and in a similar format ((i.e., description of property, dates of acquisition and disposition, proceeds, basis, adjustment and code(s), and gain or (loss)). Use as many attached statements as you need. Enter the combined totals from all your attached statements on Parts I and II with the appropriate box checked.

For example, report on Part I with box B checked all short-term gains and losses from transactions your broker reported to you on a statement showing basis wasn't reported to the IRS. Enter the name of the broker followed by the words "see attached statement" in column (a). Leave columns (b) and (c) blank. Enter "M" in column (f). If other codes also apply, enter all of them in column (f). Enter the totals that apply in columns (d), (e), (g), and (h). If you have statements from more than one broker, report the totals from each broker on a separate row.

Don't enter "Available upon request" and summary totals in lieu of reporting the details of each transaction on Part I or II or attached statements.

Per this quora answer,

...you can also attach a statement that contains all of the information required by Form 8949 to that form and just report rollup totals on the 8949. A detailed combined 1099 from a brokerage firm that has all of that information is acceptable, and I did that for my clients on many occasions.

So (it appears) if your 1099 has all the required details of each transaction, (i.e., description of property, dates of acquisition and disposition, proceeds, basis, adjustment and code(s), and gain or (loss)) you can summarize the results on Form 8949 with the name of the broker followed by "see attached statement" in column (a), an M in column (f) (and any other codes that apply), and then simply attach a copy of all 500+ pages of your 1099.

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PS. if you are doing a lot of trading and not holding stocks for a long period of time, you may qualify to be considered a "trader" and furthermore you might want to consider taking the "mark-to-market" election. Depending on your situation, taking the mark-to-market election could be advantageous. For example, capital gains and losses are treated as ordinary income, and thus all short-term losses can be used to offset other income without the $3,000 limitation. Moreover, you would not have to report each transaction separately, and wash sale rules would not apply. Instead,

Under the mark-to-market rules, dealers and eligible traders are treated as having sold all their securities on the last day of the tax year at their fair market value (FMV), causing gain or loss to be taken into account for the year

This graphic summarizes the different treatment of income and deductions depending on your investor/trader/dealer status:

While there could be advantages, there are also clear disadvantages to electing mark-to-market trader status, such as the fact that all gains are taxed as ordinary income, and that it accelerates the recognition of gains -- forcing you to pay tax on phantom gains (as though you had liquidated your position on Dec 31, even if you hadn't.)

Also note that the IRS does not provide an crystal clear definition of what qualifies one to be considered a trader. You can look at case law to gather a sense of whether or not you qualify, or you may have to seek the opinion of a tax attorney.

Finally, note that you have to make the election by April 15, 2017 to use mark-to-market accounting for tax year 2017. It is probably too late for 2017 (unless you qualify for Sec. 9100 relief), but (if the above caveats haven't discouraged you) you may wish to investigate this option for the future.

Answer 2

I am not familiar TurboTax. Nor am I familiar with how RobinHood prepares its tax forms or whether there is conformity on how brokers prepare their 1099 and 8949 tax forms. Therefore, do not construe my comment as an answer to your dilemma. But perhaps if I describe my circumstances, you may be able to discern the solution from your tax forms.

Suppose my 1099 reads as follows:

1,000,000 Proceeds
. 975,000 Cost Basis
... 50,000 Wash Sale Disallowed

In and of itself, these numbers are correct. But it does not differentiate whether these are wash sale "carryover" violations or not. For example, if I did all of this trading during the year and I took December off (30 days elapsed since all positions closed), there would be no carryover and my taxable STCG would be $75k.

My 8949 breaks down all of the trades and the summary would look like:

Proceeds Cost Adjustment Gain/loss

1,000,000 975,000 50,000 75,000

These four numbers are what my accountant enters in columns d, e, g, and h on my Schedule D form.

FWIW, I scale in and out of trades and that causes a lot of Wash Sale violations. Because the 8949-s from my brokers occasionally have some errors, in years where I have done heavy trading, I have used Tradelog which is a stock trading tax accounting program. It's accurate to the penny. Another reputable program that others I know have used is Gainskeeper.

Answer 3

I don't know about doing it on TurboTax or H&R Block, but I believe (though I am not an expert on this) that, if the number of transactions with adjustment is small, you can report it on the paper forms without using a lot of pages:

Exception 1 in the Form 8949 instructions says that transactions without adjustments don't need to be reported on Form 8949, and the totals just need to be reported on Schedule D. So you would only report those transactions with adjustments (which we assumed was a small number) on Form 8949. Then, you calculate the totals for proceeds, cost, and gain for all the transactions that didn't have adjustments, by taking the totals from the summary you have, and subtracting the values for the transactions with adjustment (which shouldn't be hard if there's only a small number of the latter), and report those totals directly on line 1a on Schedule D.