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You can use same lot selection to relieve the same lots across multiple accounting bases within an entity in order to keep lots in sync across bases.

Why Lot Structures Become Out of Sync

In Eagle Accounting, a position on one accounting basis works independently from the same position in a different basis. Differences in accounting standards for different accounting bases can result in differences in lot structure and position cost. Such differences can include wash sale loss deferrals, amortization, or the result of using different lot relief methods. 

A typical cause for these differences is wash sale processing, which is not a GAAP requirement. Wash sale guidelines allow the disallowance of losses from the disposition of securities for tax purposes. The disallowed loss amounts result in the adjustment of the cost basis of open lots that remain in a position after a close transaction is processed. There are scenarios that can also result in the fracturing of open lots if the close quantity is less than the open lot quantity of the lot that receives the disallowed loss. The fracture can result in multiple open lots in a USTAX basis with a total quantity that equates to the quantity of a single lot in a GAAP basis. Disallowed losses are not considered for GAAP accounting. Therefore book cost is not adjusted and fractures do not occur from wash sale processing.

Due to potential differences in lot cost and structure, lot selection logic that occurs during close processing can potentially result in the selection of different lots between bases than if the selection logic was applied to each basis independently.

When you use same lot selection, despite the difference in cost and lot structure, the system relieves the “same” lots across all bases on an entity. The ending result is that the remaining lots in each basis originate from the same lots even though the structure (due to wash sales) and cost may be different.

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How Same Lot Selection Affects Close Transactions

In order to use same lot selection, you must identify an accounting basis within an entity as the controlling basis to use for lot selection. During automated or manual processing for a close transaction, when the system executes a trade on both bases, it uses the lot selection results of the controlling basis to perform lot selection for the non-controlling basis or bases. 

When the system performs same lot selection during processing, it uses the lot selection method of the controlling basis to select lots and create close transactions for the controlling basis. However, when the system creates close transactions for a non-controlling basis, it uses the lots selection results of the controlling basis and assigns the lot selection method of SMLOT to the close transactions created. This indicates that the close transaction's lot selection method was assigned by the system as a result of same lot selection processing based on the lot selection method of the controlling basis. If the system cannot identify a controlling basis when it processes close transactions automatically, same lot selection does not occur. 

Same lot selection uses the Original Event ID (tag 457) as a common lot identifier on transactions and as the common link across lots for multiple accounting bases. This identifier indicates that a lot in a position on one basis is the same lot on another basis. Due to fractured lots caused by wash sales, multiple lots on one basis can correspond to a single lot on another basis. This Original Event ID tag has the same value on the fractured lot and its sub-lots in the case of wash sales. 

For example, entity A has a primary accounting basis of USTAX that uses a lot selection method of FIFO, and a secondary accounting basis of GAAP that uses a lot selection method of LIFO. The secondary GAAP basis is the controlling basis in this scenario. When the system creates a close trade for this entity, it creates close transactions for both bases following the LIFO results of the controlling basis. The close transactions in the controlling basis show an LSM of LIFO. The close transactions in the non-controlling basis show an LSM of SMLOT.



WRITERS NOTE: section above  is iffy. do we need some scenarios here to illustrate? do different bases still have different LSMs? 

About Pending Transactions and Same Lot Selection

When you use pending transactions and also use same lot selection, the system uses the controlling basis when you manually cancel a transaction. For entities marked as pending trade eligible (tag 3679 set to Y), the system insert a copy of the manually cancelled transaction to the Pending Trades table for the controlling basis. If there is no controlling basis, it stores a copy of the transaction for the primary basis.

About Reconciliation and Same Lot Selection

If you use same lot selection and use Eagle solutions for reconciliation, STAR to PACE Direct sends the Original Event ID to the Eagle data warehouse tables for use in reconciliation when comparing lots. You can set up the reconciliation process to identify expected accounting differences and to assign reason codes that inform you why lots are out of sync. For example, if you have known amortization methods differences between bases that would cause a break each day, you can set up rules to evaluate the difference to see if it met certain conditions. If conditions are met, the system can flag the amortization difference as an expected or known difference and assign it a specific reason codde. 



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