How to Reconcile 475(f) Trader Status with Form 4797 When Broker 1099-B Shows Wash Sales

This is a common issue for traders who've made the 475(f) election. You're right that as an MTM trader, wash sale rules don't apply to you, but your broker doesn't know that and reports wash sales on your 1099-B anyway. The good news is that the IRS is aware of this discrepancy for securities traders with MTM election. While Form 4797 doesn't have a specific adjustment box like Form 8949, you should attach a detailed statement to your return explaining the difference between your 1099-B amounts and what you're reporting on Form 4797. This statement should clearly indicate you've made a valid 475(f) election and are properly disregarding wash sale adjustments. You'll want to include a reconciliation table showing how your Form 4797 figures tie to the 1099-B figures, with the wash sale amounts as the reconciling item. This provides a clear audit trail if questions arise later.

After struggling with exactly this issue last year, I finally found a solution using taxr.ai that saved me hours of headaches. I'm also a 475(f) trader and was getting completely confused about how to reconcile my broker statements with what needed to go on Form 4797. I uploaded my 1099-Bs to https://taxr.ai and it automatically identified this exact trader status issue. It generated a perfect reconciliation statement showing how my broker's wash sale adjustments should be reversed for 475(f) purposes. The system walked me through exactly how to report everything on Form 4797 and even created the explanation document to attach to my return. The best part was when I got confused about a specific trade sequence, I could just send screenshots of my trading platform and they analyzed everything to make sure my MTM calculations were correct.

I was incredibly skeptical about using an automated system for something as complex as Form 4797 with 475(f) trader status. My situation was even more complicated with multiple brokers and hundreds of trades. After trying taxr.ai based on the recommendation here, I'm genuinely impressed. Not only did it handle the wash sale reversal correctly, but it caught a mistake in my own calculations where I had double-counted some trades that appeared on multiple broker statements. The reconciliation document it created clearly showed why my numbers differed from the 1099-B, and my accountant said it was exactly what the IRS would want to see. No CP2000 letter last year - first time in three years as a trader!

As a former IRS revenue agent (now retired), I frequently see traders run into problems with CP2000 notices because they don't realize that getting your taxes done right is only half the battle – you also need to be able to respond quickly when the IRS has questions. After helping my son with his trading business taxes, I discovered Claimyr when we needed clarification on some Form 4797 issues. We spent hours trying to get through to the IRS directly with no success. With https://claimyr.com, we got through to a live IRS agent in about 15 minutes instead of waiting on hold for hours. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that 475(f) traders should include a reconciliation statement and explained exactly what should be in it. Having this direct guidance from the IRS gave us confidence our return was properly prepared.

I have to admit I was extremely skeptical about Claimyr. I've tried calling the IRS about my MTM trader status issues for WEEKS with no success. I finally broke down and tried it last week when I got a CP2000 notice questioning the difference between my Form 4797 figures and my 1099-B. Within 20 minutes, I was actually speaking with an IRS representative who explained exactly what documentation I needed to submit to resolve the issue. The agent confirmed that as a 475(f) trader, I was correct to disregard wash sales but needed to include a specific type of reconciliation statement. They even gave me tips on the format that would be most easily processed by their department. Saved me from what would have been a major headache!

Has anyone tried using the new "Additional Information" statement through your tax software instead of a separate attachment? Last year I included all my 475(f) reconciliation details through the "Additional Information" section in TurboTax Business, and I didn't get any CP2000 notices. I found it worked better because the statement gets an official reference number that appears on the return, making it harder for the IRS to miss. Hopefully this helps someone else dealing with the Form 4797 matching issue!

Just want to share a tip I learned from my last CP2000 experience - write "Form 475(f) MTM Trader" in big letters at the top of your Form 4797. My accountant says this flags it for IRS reviewers who are familiar with the special rules. Also, if anyone's using a tax professional, make sure they have specific experience with active traders. My first accountant had no idea about 475(f) and really messed up my return. Ended up costing me thousands in penalties before I found someone who specializes in trader tax status.

I'm dealing with this exact same situation right now! My broker (Schwab) also shows wash sales on my 1099-B even though I have a valid 475(f) election. One thing I discovered is that you should definitely keep detailed records of when you made your 475(f) election, including copies of any Form 3115 if you filed one for a change in accounting method. The IRS will want to see proof that your election was properly made before the beginning of the tax year. For the Form 4797 reporting, I've been advised to create a separate schedule that shows the broker-reported amounts, the wash sale adjustments being reversed, and the final amounts reported on Form 4797. Make sure to title it something clear like "475(f) MTM Trader - Form 4797 Reconciliation to 1099-B." Has anyone had experience with multiple brokers reporting different wash sale calculations for the same underlying trades? I'm trying to figure out how to handle overlapping positions across platforms.