7619 / When can constructive sales of multiple appreciated financial positions occur and how are they treated for tax purposes?

The Blue Book explains the preceding paragraph (and provides an example) as follows: “A transaction that has resulted in a constructive sale of an appreciated financial position (e.g., a short sale) is not treated as resulting in a constructive sale of another appreciated financial position as long as the taxpayer holds the position that was treated as constructively sold. But when that position is assigned, terminated or disposed of by the taxpayer, the taxpayer immediately thereafter is treated as entering into the transaction that resulted in the constructive sale (e.g., the short sale) if it remains open at that time. Thus, the transaction can cause a constructive sale of another appreciated financial position at any time thereafter.”²

Example: Assume a taxpayer holds two appreciated stock positions and one offsetting short sale, and the taxpayer identifies the short sale as offsetting one of the stock positions. If the taxpayer then sells the stock position that was identified, the identified short position would cause a constructive sale of the taxpayer’s other stock position at that time.³

The IRC also provides that if a taxpayer holds multiple positions in property, the determination of whether a specific transaction is a constructive sale and, if so, which appreciated financial position is deemed sold will be made in the same manner as actual sales.⁴