Rev. Rul. 56-602

Advice has been requested whether the provisions of section 1091 of the Internal Revenue Code of 1954 will operate to disallow a loss sustained on the sale of shares of stock which constitute part of a lot purchased by the taxpayer less than 30 days before the sale.

Section 1091 of the Code provides in part as follows:

(a) DISSALLOWANCE OF LOSS DEDUCTION.-In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction for the loss shall be allowed under section 165(c)(2); nor shall such deduction be allowed a corporation under section 165(a) unless it is a dealer in stocks or securities, and the loss is sustained in a transaction made in the ordinary course of its business.

The above-quoted provision was first enacted in section 214(a)(5) of the Revenue Act of 1921 and was designed to prevent avoidance of tax through wash sales. The inclusion of this section in the law, as stated in Congressional reports on the Act, would limit the deductions for losses by providing that on deduction would be allowed for losses sustained in the sale of securities where the taxpayer at or about the time of such sale, purchases identical securities. See Senate Report No. 275, H.R. Report No. 350, and H.R. (Conference) Report No. 486, 67th Congress, First Session, C.B. 1939-1 (Part 2), 181 at 191, 168 at 177, and 206 at 214, respectively.

Subsequent Congressional discussions and reports refer consistently to the `new acquisition' and to `repurchasing' and `buying back' stock or securities. These terms indicate an intent on the part of Congress to prevent a taxpayer's taking losses for tax purposes while giving up his position in a security for only a few days or not at all. However, they do not indicate an intent to disallow a loss sustained in a bona fide sale of securities made to deduce the taxpayer's holdings, even though the sale is made within 30 days after the securities were purchased.

Accordingly, it is held that the deduction of a loss sustained on the sale of a portion of the shares of stock purchased in one lot by the taxpayer less than 30 days before the sale will not be disallowed by reason of the provisions of section the sale will not be disallowed by taxpayer acquired in the original purchase more shares than he later sold. For example, a taxpayer acquires 200 shares of the only outstanding stock of a corporation. Less than 30 days after its acquisition, he sells 100 of these shares at a loss. The loss will not be disallowed unless during the period prescribed in section 1091(a) of the Code, he acquires, or enters into a contract or option to acquire, additional shares or securities which are substantially identical to those sold.