Customer-Facing Tax Features — Legal Posture Research

Status: research-only. This document does NOT constitute legal or tax advice. Before building, shipping, or disclaiming any of the features described here, consult a tax attorney specializing in fintech and a CPA licensed in Pennsylvania. This document is also attorney-prep material and is Drive-eligible per feedback_human_to_human_drive.md.

Last updated: 2026-05-21. Sources as of that date — verify freshness before acting.

Jurisdiction flags: Federal (IRS), Pennsylvania (operator home state), all 50 states (Raxx v1 US-only per project_eu_geoblock_decision and project_quebec_geoblock_decision).

TL;DR (3 sentences)

Showing customers tax-relevant data about their own trades — wash-sale flags, §1256 contract tags, realized P&L, holding-period indicators — is settled informational territory when framed as data, not direction, and is backed by widespread fintech precedent. The bright line into regulated territory is when Raxx makes a personalized recommendation ("close lot X to harvest a loss") or executes a trade with tax optimization as the stated goal — that is either tax advice (Circular 230 adjacent) or investment advice (Investment Advisers Act). The v1 safe path is: surface the data, surface the rule, tell the customer to consult their tax professional for what to do with it — and ensure every tax-adjacent surface carries a consistent disclaimer.

1. Regulatory Framework Overview

1.1 IRS Circular 230 — Does It Apply to Raxx?

Circular 230 (31 C.F.R. Part 10) governs "practice before the Internal Revenue Service." It covers attorneys, CPAs, enrolled agents, and other individuals who represent taxpayers before the IRS.

Key finding: Circular 230 applies to practitioners (licensed individuals), not to software companies or SaaS platforms as corporate entities. A SaaS product displaying tax-relevant data does not itself "practice before the IRS." However:

• If Raxx employees or contractors who are CPAs, EAs, or attorneys provide tax advice through the platform, Circular 230 applies to those individuals personally.
• If Raxx's product output could be construed as a "written tax advice" communication under § 10.37, the analysis becomes fact-specific. § 10.37 was substantially revised in 2014 to eliminate rigid disclaimer requirements in favor of a "reasonable" standard. Final regs eliminated the covered-opinion rules; all written tax advice is now subject to a single reasonableness standard.

Source:

https://www.irs.gov/tax-professionals/office-of-professional-responsibility-and-circular-230
https://www.irs.gov/pub/irs-pdf/pcir230.pdf
https://www.taxnotes.com/research/federal/treasury-decisions/final-regs-scrap-disclaimers-some-written-tax-advice/czk9

Practical framing: Raxx is not a Circular 230 practitioner. But if Raxx's interface tells a customer "you should sell lot X to reduce your tax bill," a tax attorney would need to assess whether that crosses into the territory that triggers practitioner-style obligations on whoever signed off on the advice. The safe path is to frame all outputs as factual data about what the customer's own trades did, not direction on what to do.

1.2 Investment Advisers Act of 1940 — The More Immediate Risk

The Investment Advisers Act of 1940 (15 U.S.C. § 80b-1 et seq.) defines an "investment adviser" broadly as any person who: 1. Is in the business of advising others 2. As to the value of securities or the advisability of investing in, purchasing, or selling securities 3. For compensation

Source:

https://uscode.house.gov/view.xhtml?path=%2Fprelim%40title15%2Fchapter2D%2Fsubchapter2&edition=prelim

The SEC's robo-adviser position (2017, reaffirmed 2024): Automated platforms that provide personalized, ongoing investment management are investment advisers, regardless of whether delivery is algorithmic or human. The SEC explicitly declined to issue no-action relief for robo-advisers; instead it confirmed they require registration.

Source:

https://www.sec.gov/newsroom/press-releases/2017-52
https://www.federalregister.gov/documents/2024/04/09/2024-06865/exemption-for-certain-investment-advisers-operating-through-the-internet

The "solely incidental" broker-dealer exclusion applies only to broker-dealers providing advice incidental to their brokerage business for no special compensation. Raxx is not a broker-dealer and cannot rely on this exclusion.

Source:

https://www.federalregister.gov/documents/2019/07/12/2019-12209/commission-interpretation-regarding-the-solely-incidental-prong-of-the-broker-dealer-exclusion-from

Critical Raxx distinction (from project_strategic_position): Raxx is an automation and structure enforcement platform. The user defines the rules (entry/credit/exit); Raxx enforces them. Per feedback_deterministic_execution_ai_augments, execution is rule-based, never AI-autonomous. Per feedback_no_forward_looking_framing, Raxx is fully retrospective on user's own data. This framing, maintained consistently through product, copy, and disclaimers, is the architecture of the Investment Advisers Act exclusion argument. Whether it holds requires a securities attorney's opinion (already flagged in docs/business/questions-for-attorney.md Section I, question I1).

2. §1091 Wash-Sale Rule — Feature-by-Feature Analysis

Statutory source:

https://www.law.cornell.edu/uscode/text/26/1091
https://uscode.house.gov/view.xhtml?req=%28title%3A26+section%3A1091+edition%3Aprelim%29

Core rule: If a taxpayer sells stock or securities at a loss and acquires "substantially identical" stock or securities within 30 days before or after the sale, the loss deduction is disallowed. The basis of the replacement shares is adjusted upward by the disallowed loss.

2.1 Feature: "This trade would trigger a wash sale" warning

Posture: Settled informational territory.

Showing a customer that a contemplated trade falls within the §1091 61-day window is factual data. It is the same information the customer's broker reports on Form 1099-B (within-account wash sales only). Multiple fintech players surface this without registering as investment advisers or tax preparers: - Charles Schwab publishes wash-sale education - Fidelity publishes wash-sale education - Various tracking tools (TradeLog, Mezzi) surface alerts

Required framing: The alert must be presented as: "This appears to meet the conditions of a wash sale under IRS § 1091. Consult your tax professional to confirm how this affects your specific tax situation." It must NOT say "do not make this trade" or "sell X instead."

Source (broker-level precedent):

https://www.schwab.com/learn/story/primer-on-wash-sales
https://www.fidelity.com/learning-center/personal-finance/wash-sales-rules

2.2 Feature: Cross-account wash-sale detection (spouse accounts, IRAs)

Posture: Informational if surfaced as data; complex if surfaced as instruction.

IRS Publication 550 confirms the wash-sale rule applies across spousal accounts and IRA/Roth IRA accounts. Critically: - If the replacement purchase is in an IRA/Roth IRA, the disallowed loss is permanently forfeited (not deferred) — Revenue Ruling 2008-5. - Brokers only report within-account wash sales on Form 1099-B. Cross-account detection is entirely the taxpayer's responsibility.

Source:

https://www.irs.gov/pub/irs-drop/rr-08-05.pdf   (Revenue Ruling 2008-5)
https://www.schwab.com/learn/story/primer-on-wash-sales   (spousal + IRA coverage)
https://www.mezzi.com/blog/avoid-wash-sales-across-accounts   (platform example, non-primary)

The harder question for Raxx v1: Raxx only sees trades executed through the user's connected broker. It does not see: - Spouse accounts at a different broker - IRA/Roth IRA accounts not connected to Raxx - Any other brokerage account the user has not connected

Raxx v1 should explicitly disclaim this gap. Sample language:

"Raxx monitors wash sales within the accounts you have connected. We cannot detect wash sales in accounts you have not connected — including spousal accounts or tax-advantaged accounts at other brokers. Brokers only report within-account wash sales on Form 1099-B. Cross-account tracking is your responsibility. Consult your tax professional."

Should Raxx detect cross-account wash sales within connected accounts? Yes — if a user connects multiple accounts, surfacing cross-account conflicts within that connected set is informational and valuable. The disclaimer about non-connected accounts is still required.

Does Raxx need to detect spouse-account wash sales? No mandatory obligation. But the disclaimer that Raxx cannot see them is important. Confirm with a tax attorney whether surfacing a known gap creates any duty to warn beyond the disclaimer. This is question O2 in the new questions section below.

2.3 Feature: Auto-rebalancing to harvest losses without triggering wash sale

Posture: Likely crosses into investment advice territory. Do not ship without securities attorney opinion and potential RIA registration analysis.

Automated tax-loss harvesting — where the platform sells a losing position and immediately buys a correlated substitute to maintain market exposure — is the core business of Wealthfront, Betterment, and other registered investment advisers.

Betterment's 2023 SEC enforcement action is instructive: - Betterment was charged with violating Sections 204, 206(2), and 206(4) of the Investment Advisers Act for material misstatements about its TLH service. - The violations were not about doing TLH — they were about misrepresenting what TLH was doing (changed scanning frequency, programming constraints, coding errors). - Betterment settled for $9 million. - This action confirms: TLH is squarely inside the Investment Advisers Act when executed automatically as part of an advisory service.

Source:

https://www.sec.gov/newsroom/press-releases/2023-80
https://www.cnbc.com/2023/04/19/robo-advisor-betterment-settles-tax-charges-with-sec-for-9-million.html

Raxx's position: Raxx does not hold custody. Raxx is an automation layer over the user's own broker account. But if Raxx suggests specific tax-optimizing trades and executes them automatically, that is functionally identical to Betterment's TLH — and likely triggers the Investment Advisers Act. Do not build automated TLH execution without a securities attorney's opinion and a formal RIA analysis.

3. §1256 Contracts — 60/40 Treatment Feature Analysis

Statutory source:

https://www.law.cornell.edu/uscode/text/26/1256

Core rule: Section 1256 contracts are marked to market at year-end, and 60% of gains/losses are treated as long-term capital gains, 40% as short-term — regardless of actual holding period.

3.1 What qualifies as a §1256 contract

A "section 1256 contract" means: - Any regulated futures contract - Any foreign currency contract - Any nonequity option (= a listed option that is NOT an equity option) - Any dealer equity option - Any dealer securities futures contract

An equity option is any option to buy or sell stock, or whose value is determined by reference to any stock or any narrow-based security index. Equity options are EXCLUDED from §1256 treatment.

Source:

https://www.law.cornell.edu/uscode/text/26/1256  (26 U.S.C. § 1256)
https://codes.findlaw.com/us/title-26-internal-revenue-code/26-usc-sect-1256/

3.2 Practical index options vs. equity options distinction

Critical distinction: SPX options qualify; SPY options do NOT — even though both track the S&P 500. SPY is an ETF (equity), not a broad-based index.

Source:

https://www.cboe.com/tradable_products/index-options-benefits-tax-treatment/
https://www.daystoexpiry.com/blog/spx-section-1256-tax   (explainer, non-primary)
https://www.equicurious.com/learn/investing-basics/taxes-and-regulations/tax-rules-for-options-trading-section-1256-and-equity-options  (explainer)

CBOE disclaimer on its own page: "Investors should consult with their tax advisors to determine how the profit and loss on any particular option strategy will be taxed." Even CBOE — the exchange for SPX options — defers to tax professionals.

3.3 Source of truth for §1256 qualification: EY annual qualified board list

Ernst & Young publishes an annual updated list of IRC § 1256 qualified boards or exchanges under IRS Rev. Rul. direction. The 2025 list includes: - 24 SEC-registered national securities exchanges (NYSE, Nasdaq, Cboe, etc.) - ~23 CFTC-designated contract markets (CME, ICE, NYMEX, etc.) - 9 Treasury-approved international exchanges

Source:

https://taxnews.ey.com/news/2026-0318-updated-2025-us-irc-section-1256-qualified-board-or-exchange-list
https://taxnews.ey.com/news/2025-0374-updated-2024-us-irc-section-1256-qualified-board-or-exchange-list

Note: The EY list is updated annually and subject to change. Raxx should not hardcode a §1256 classification list without a mechanism to update it and a disclaimer that the user must confirm treatment with their tax professional.

3.4 Feature: Auto-tagging §1256 contracts in the trade log

Posture: Informational — low risk if correctly framed.

Flagging a contract as "appears to qualify for §1256 treatment" is informational, not advice. The user's broker will also indicate §1256 treatment on Form 1099-B. This is a data-display feature.

Required framing:

"This contract type (broad-based index option / regulated futures) typically qualifies for Section 1256 60/40 tax treatment. Your broker will confirm this on your Form 1099-B. Consult your tax professional to verify treatment for your specific contracts and situation."

Risk: Mis-tagging a narrow-based or equity-linked contract as §1256 could cause a user to under-report short-term gains. Raxx must be conservative — when classification is ambiguous, show "consult your tax professional" rather than a definitive tag.

4. Tax-Lot Accounting — Feature Analysis

Regulatory context: The IRS allows taxpayers to use specific identification (SLID) for cost-basis assignment if the lot is identified at the time of sale. IRS Notice 2025-7 provided temporary relief for 2025 allowing SLID by recording standing instructions in the taxpayer's own books and records.

Source:

https://www.irs.gov/pub/irs-drop/n-25-07.pdf   (Notice 2025-7 — unsourced; confirm with CPA)
https://awaken.tax/media/article/fifo-lifo-hifo-strategy-guide   (explainer)

Key distinction: - Setting the lot method (FIFO, SLID, HIFO) is broker-side. The instruction to use a specific lot method is given to the broker at or before the time of sale. Raxx does not execute the lot instruction — the user's broker does. - Displaying which lots are open, their cost basis, and their unrealized gain/loss is informational. This is data Raxx can surface from the broker's position feed.

4.1 Feature: Show open lots, cost basis, unrealized gain/loss

Posture: Informational — established fintech territory.

Interactive Brokers' Tax Optimizer, Fidelity's lot viewer, and similar tools all surface this data. It is a display of facts about the user's own positions.

Source (broker-level precedent):

https://www.interactivebrokers.com/en/trading/tax-optimizer.php
https://www.ibkrguides.com/clientportal/trade/viewtaxlots.htm

4.2 Feature: "Suggest which lot to close" to minimize taxes

Posture: Tax advice territory. Do not ship without attorney sign-off.

When Raxx says "close lot Y because it produces a long-term gain instead of a short-term gain," that is a tax-motivated recommendation specific to the customer's financial position. This is structurally identical to what a CPA does when advising on tax-lot selection. This feature requires explicit review by a tax attorney before shipping.

What Interactive Brokers does instead: IB's Tax Optimizer lets users choose a method (minimize short-term gains, maximize long-term losses, etc.) — the user selects the optimization goal, and IB mechanically applies it. The user's directive drives the decision, not IB's recommendation. This is the safer framing for Raxx.

Reframe: Let the user set their tax preference ("I prefer to minimize short-term gains") and show them which lots would be selected under that preference. Raxx surfaces the math; the user makes the call.

5. Tax-Loss Harvesting at Scale — The Wealthfront / Betterment Tier

5.1 What these platforms do and how they're registered

Both Wealthfront and Betterment are registered investment advisers (RIAs) with the SEC. They are not running TLH as an informational feature — they are running it as part of their discretionary investment management service.

• Wealthfront: RIA, manages assets, charges advisory fee, executes trades autonomously
• Betterment: RIA, manages assets, charges advisory fee, executes trades autonomously
• Both: paid a $9M (Betterment) or regulatory scrutiny for their TLH programs

Raxx's v1 scope (from project_strategic_position): Raxx enforces user-defined rules; Raxx does not manage assets on a discretionary basis. Raxx does not hold custody. Raxx charges a SaaS subscription for the automation platform, not an AUM fee.

This structural difference is load-bearing for the Investment Advisers Act analysis. A platform that lets users define TLH rules and then executes those rules is in a different posture than a platform that autonomously optimizes for tax efficiency. But the line is not drawn in statute — it requires a securities attorney's opinion.

5.2 Disclaimer language from Wealthfront, Betterment, and J.P. Morgan

Wealthfront whitepaper:

"Wealthfront Advisers and its affiliates do not provide legal or tax advice. Nothing in this white paper should be construed as tax advice, a solicitation or offer. The tax consequences of the Tax-Loss Harvesting strategy may be challenged by the Internal Revenue Service (IRS). Prospective investors and clients are responsible for how the transactions conducted in an account are reported to the IRS."

Source:

https://research.wealthfront.com/whitepapers/tax-loss-harvesting/

Betterment disclosure:

"The TLH service is not intended as tax advice. You and your tax advisor are responsible for how transactions conducted in your account are reported to the IRS, or any other tax authority. Betterment assumes no responsibility for the tax consequences to any client of any transaction associated with TLH. You are solely responsible for determining whether to use TLH and whether you would benefit from doing so."

Source:

https://www.betterment.com/legal/tax-loss-harvesting

J.P. Morgan (boilerplate used across their fintech surface):

"JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction."

Source:

https://www.jpmorgan.com/disclosures/taxlegaldisclaimer

5.3 The Betterment SEC lesson — what NOT to do

The Betterment $9M SEC enforcement action (2023) was not about doing TLH. It was about misrepresenting what TLH was doing — specifically: - Failing to disclose a change in scanning frequency - Failing to disclose a programming constraint affecting certain clients - Two coding errors that silently prevented TLH from working for ~25,000 accounts

Lesson for Raxx: If Raxx ships any tax-relevant automation feature, the product must accurately represent what the feature is and is not doing. Silent bugs or undisclosed limitations in tax-adjacent features are the specific regulatory risk — not the feature itself. Every tax-adjacent feature needs: - Accurate technical description of what it does and does not monitor - Explicit disclosure of limitations (e.g., "only monitors connected accounts") - A bug-detection / alerting path so customers are notified if the feature stops working

Source:

https://www.cnbc.com/2023/04/19/robo-advisor-betterment-settles-tax-charges-with-sec-for-9-million.html
https://www.betterment.com/sec-settlement-2023

6. Pennsylvania State Tax — Jurisdiction Flag

PA capital gains treatment differs from federal in two material ways:

1. No short-term / long-term distinction. Pennsylvania taxes all capital gains at the flat 3.07% personal income tax rate. The federal preferential rate for long-term gains (0% / 15% / 20%) does not apply in Pennsylvania. §1256 60/40 treatment has no Pennsylvania analogue — all gains are ordinary income.
2. No loss carryforward. Pennsylvania does not allow capital loss carryforwards. Losses may only offset gains within the same tax year.

Implication for Raxx: Any feature that surfaces federal tax treatment (e.g., §1256 60/40, long-term vs. short-term indicators) must either: - Scope the label as "federal tax treatment" not "your tax treatment," or - Disclaim that state treatment may differ and direct users to their tax professional.

Sources:

https://learn.valur.com/pennsylvania-capital-gains-tax/   (explainer)
https://www.pa.gov/agencies/revenue/resources/tax-rates   (PA DOR — primary)

For users in other states: Because Raxx is a nationwide US platform at v1, every state has different capital gains treatment. Some states have no income tax (FL, TX, WA, NV); some have higher rates than federal (CA 13.3% top rate). Raxx should not present federal tax indicators as if they are complete. Every tax-adjacent display should include "state treatment varies — consult your tax professional."

7. Operator-Side Tax Obligations (MooseQuest LLC dba Raxx)

These are operator-facing items for the CPA consult, not customer-facing product questions.

7.1 1099-MISC / 1099-NEC for affiliates or contractors

• If Raxx pays any US-based independent contractor $600+ in a calendar year, a 1099-NEC is required (filed with IRS and furnished to contractor by Jan 31 of following year).
• Source: IRS Form 1099-NEC instructions — https://www.irs.gov/instructions/i1099nec

7.2 1099-K from Stripe (Raxx as payee)

• Stripe is required to issue a 1099-K if Raxx processes $5,000+ in payments in 2024 (threshold reduced from $20,000 by the American Rescue Plan; IRS delayed enforcement; IRS Notice 2024-85 sets $5,000 for calendar year 2024 and $2,500 for 2025).
• This is income to MooseQuest LLC, not customer tax data.
• Source: IRS Notice 2024-85 — https://www.irs.gov/newsroom/irs-announces-2024-form-1099-k-reporting-threshold

7.3 Pennsylvania flat-rate income tax on pass-through

• PA imposes 3.07% on all income. S-Corp election does not eliminate PA personal income tax on pass-through income; PA does not recognize the federal S-Corp election as a separate state classification (no separate PA S-Corp election needed, but the PA PIT still applies at 3.07% on distributed earnings).
• Confirm with CPA — this question belongs in docs/business/questions-for-cpa.md §C3.

8. Options Compared: Tax-Feature Tiers for v1

9. Safe-Harbor Disclaimer Language — Recommended for Raxx

9.1 Platform-level footer (every page with tax-related data)

Recommended language (adapt after attorney review):

"Raxx displays tax-related information about your own trading activity for informational purposes only. This is not tax advice, investment advice, or legal advice. Raxx does not prepare tax returns, represent you before the IRS, or advise on the tax consequences of specific trades. Federal tax treatment shown does not reflect your state tax obligation, which varies. Always consult a qualified tax professional before making decisions based on tax considerations."

9.2 Wash-sale alert surface

"This trade appears to meet the conditions of a wash sale under IRS § 1091. This alert is informational only and reflects activity in your connected accounts. It does not account for activity in accounts you have not connected to Raxx, including spousal accounts or tax-advantaged retirement accounts. Consult your tax professional to determine how wash sales affect your tax return."

9.3 §1256 contract tag surface

"This contract type appears to qualify for Section 1256 60/40 tax treatment under federal tax law. Your broker will confirm treatment on your Form 1099-B. State tax treatment may differ. This is informational only — consult your tax professional."

9.4 General "not tax advice" badge (in-product, near any tax-related number)

"Tax information shown is for reference only and is not tax advice. Raxx is not a tax advisor. Consult a CPA or enrolled agent for guidance specific to your situation."

Note: The placement of disclaimers matters. Betterment and Wealthfront surface their disclaimers in product UI, in their legal disclosure pages, and in their client agreements. A footer alone is not sufficient — the disclaimer should be proximate to the tax-relevant data, not only in a Terms of Service page.

10. Candidate Professional Profiles

10.1 Tax attorney — fintech / investment platform specialty

Raxx needs a tax attorney who understands both federal income tax (capital gains, §1256, wash sales) AND securities law interaction points. The following firms have documented fintech + tax practice overlap:

1. Duane Morris LLP (Philadelphia, PA) - Fintech practice: "represents fintech startups and established players including broker-dealers, non-exchange trading venues and investment advisors" - Tax practice: transactional tax + federal tax with fintech overlap - Chambers-ranked in Pennsylvania tax - Source: https://www.duanemorris.com/practices/fintech.html https://www.duanemorris.com/practices/taxRoster.html

2. Cozen O'Connor (Philadelphia + Washington DC) - Securities litigation and SEC enforcement practice - Tax group: federal + SALT, established for mid-market - Practical for a PA-domiciled entity - Source: https://www.cozen.com/practices/business/tax https://www.cozen.com/practices/litigation/securities-litigation-sec-enforcement

3. Taft Law (multi-office, fintech focus) - Represents "broker-dealers, alternative trading systems, exchanges, advisors to private funds, and digital asset trading platforms" - Relevant for Investment Advisers Act perimeter questions - Source: https://www.taftlaw.com/services/industries/fintech/

4. Faegre Drinker Biddle & Reath (Philadelphia HQ) - SEC/robo-adviser expertise — published detailed analysis of the Betterment enforcement action - Investment adviser regulatory practice - Source: https://www.faegredrinker.com/en/insights/publications/2023/4/key-compliance-issues-and-remedial-actions-in-sec-action-against-leading-robo-adviser

5. Morgan Lewis (Philadelphia HQ) - Published specifically on "Tax Considerations and Pitfalls for Fintech Startups" - Large firm with both tax + securities practices under one roof - Source: https://www.morganlewis.com/pubs/2023/06/tax-considerations-and-pitfalls-to-avoid-for-fintech-startups

Note: These are research-identified candidates based on published practice descriptions. No fee information, no guarantees of fit. Kristerpher should confirm current availability and relevant experience before engaging.

10.2 CPA profile for the operator

The CPA for issue #152 should have: - S-Corp election experience (Form 2553, reasonable-salary defense) - PA-domiciled clients with multi-state nexus exposure - Familiarity with SaaS COGS classification and subscription revenue recognition - Bonus for Raxx: Familiarity with capital gains treatment for active traders (relevant for understanding what customers will encounter, even though the CPA advises Kristerpher the operator, not the customers)

10.3 Enrolled Agent (EA) option

EAs are federally licensed by the IRS (unlimited practice rights before the IRS), typically lower-cost than CPAs for pure tax work, but cannot represent in Tax Court. For the operator-side questions in issue #152 (S-Corp election, reasonable salary, quarterly estimates), an EA is a viable lower-cost option. For the customer-facing tax-feature legal posture questions, an EA is insufficient — those require a tax attorney with securities/fintech overlap.

IRS EA directory:

https://irs.treasury.gov/rpo/rpo.jsf

11. Timing and Deadlines

12. Open Questions for Attorney (new — this research)

These are additive to docs/business/questions-for-attorney.md. They belong in Section I (investment-adviser perimeter) and a new Section O.

Section O — Customer-facing tax features

Attorney type: tax attorney with fintech/Investment Advisers Act background

O1. Investment Advisers Act perimeter for tax-adjacent features. Does surfacing wash-sale warnings, §1256 contract tags, holding-period indicators, and unrealized-gain-by-lot information — without executing any trades or making personalized recommendations — keep Raxx outside the §202(a)(11) definition of "investment adviser"? What is the specific line Raxx must not cross, stated as a product behavior description the engineering team can use?

O2. Cross-account wash-sale gap disclosure — duty to warn. Raxx can only detect wash sales in accounts the user has connected. IRS § 1091 applies across spousal accounts and IRAs that Raxx may never see. Does the platform have any affirmative duty to warn about wash-sale risk in unconnected accounts, beyond a general disclaimer? Does the disclaimer language in §9.2 of this document suffice, or is a more specific disclosure required?

O3. §1256 auto-tagging — reliance on EY qualified board list. If Raxx tags a contract as "§1256 qualifying" based on the EY annual list and that tag turns out to be incorrect (e.g., a contract is reclassified), what is Raxx's exposure? Is there a safe-harbor framing (e.g., "contract type appears to qualify — verify with your broker and tax professional") that limits liability?

O4. "User-directed lot optimization" vs. "lot suggestion" — where is the line? If the product shows: "Under your stated preference to minimize short-term gains, the system would select lot Y" — is that materially different from saying "you should sell lot Y"? Does the user's prior stated preference protect Raxx from an "advice" framing, or does the specific recommendation of a specific lot in a specific moment cross the line regardless of the preference-setting UI?

O5. Automated TLH execution — minimum registration requirements. If Raxx ever adds a feature where the system automatically sells a losing position and buys a correlated substitute (classic TLH), what SEC registration would be required? Is there a structure (e.g., user-written standing instruction + mechanical execution) that keeps Raxx below the RIA registration threshold? What precedent exists from other non-RIA platforms that execute user-defined tax rules?

O6. Disclaimer placement adequacy. Is proximate-to-data disclaimer language (§9 of this document) sufficient under the Investment Advisers Act, or does this need to appear in a client agreement, a separate disclosure document (Form ADV equivalent), or registered with any agency?

13. Open Questions for CPA (new — this research)

These are additive to docs/business/questions-for-cpa.md and are specific to the customer-tax-features product questions.

P1. PA-specific treatment of §1256 contracts. Pennsylvania does not distinguish short-term vs. long-term capital gains. Does the §1256 60/40 federal treatment produce any PA-level benefit for Pennsylvania-resident customers, or is the PA treatment always flat 3.07% regardless of federal §1256 designation? (Raxx needs to know whether to surface §1256 tags as relevant to PA users or only to federal purposes.)

P2. PA loss-carryforward limitation — customer disclosure obligation. PA does not allow capital loss carryforwards. If a customer harvests a loss in PA for federal TLH purposes, the PA treatment is "use it this year or lose it permanently." Is there any obligation (or strong practice norm) to surface this limitation when showing federal tax indicators to PA-resident users?

P3. Wash-sale basis adjustment mechanics for customer display. When a wash sale is triggered, the disallowed loss is added to the cost basis of the replacement shares. How should Raxx display the adjusted basis — show the original purchase price, the adjusted basis, or both? What is the correct label to avoid confusing or misleading customers about their cost basis for future sale calculations?

P4. Form 1099-B reliance. The broker issues Form 1099-B with within-account wash-sale adjustments and §1256 contract treatment. If Raxx's display of tax data is consistent with what the broker will report on 1099-B, does that create a sufficient safe harbor for data accuracy, or must Raxx independently verify its calculations?

P5. IRS Notice 2025-7 — specific identification standing instructions. IRS Notice 2025-7 provided relief allowing taxpayers to satisfy the specific identification requirement by recording standing instructions in their own books and records (not necessarily pre-notifying the broker). Does this change what Raxx needs to do to support SLID-method lot selection? Can Raxx's lot-display feature serve as a "books and records" recording mechanism that satisfies Notice 2025-7, or is that a stretch?

Sources

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