When certain cash settled Section 1256 contracts are exercised, some brokers report in the trade history what appears to be shares of an index being bought and sold on the date of exercise. However, since these contracts are cash settled no such shares exist or are traded. TD Ameritrade is one broker known to use this method of reporting.
Example in TradeLog:
Based on IRS Pub 550 (pages 60 and 61): "Gain or loss is recognized on the exercise of an option on a section 1256 contract." This makes sense because, as is the case of these cash-settled index options, you do not actually receive a security when exercised, only cash. Therefore, if your broker uses this type of reporting it must be adjusted in TradeLog for proper tax accounting.
The adjusted Section 1256 contracts will be reported on TradeLog's Section 1256 Contracts report (used for Form 6781).
If you experience problems making these adjustments in TradeLog, please use the Get Support feature in TradeLog to submit your TradeLog file with your support request. Our support team will respond by email with the support you need.
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.