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An article by Philip Wolitzer and Robert Wolitzer entitled "Tax Strategies After the Revenue Reconciliation Act of 1993," which appeared in the June 1994 issue of The CPA Journal said that a way to convert short-term capital gains into long-term capital gains is with put options. The article went on to suggest that if an investor had a profit in a stock investment but the holding period was less than 12 months, the investor could protect against a market decline by purchasing a put, but that the holding period for the investment would continue uninterrupted.

As noted in an article appearing in Barron's on March 11, 1996, by attorney Joseph F. Gelband, IRC section 1233 (b) says that the purchase of a put option is treated as a short sale, which would trigger the wash sale rules. Those rules say that the holding period during the period when there is no risk of loss with regard to the investment is excluded. Mr. Gelband in his Barron's article went on to say that the holding period of the securities protected by the put starts over at the exercise or expiration of the put.

The rules relating to short sales, wash sales, substantially equivalent securities, and stock options are complex. Readers are advised to consult with experienced professionals when planning or encountering such transactions. *

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