As the name indicates the accommodation trading is a kind of adjustment trading in which one trader accommodates or adjusts for another trader by entering or establishing a non-competitive purchase or sales order or a non competitive environment within the market. Accommodation trading is not considered legal and it is adopted in situations where both the traders are dealing in illegal trading.
The example of the accommodation trading is a situation where two traders agree to exchange the stock or bundle of goods at a price that is far below than the market price of the exchanged stock. This exchange is illegal as it results in realizing the seller that he is bearing a large capital loss on the shares due to this illegal exchange. The large loss of capital will help the seller to evade tax payment for that particular accounting period.
The example of Accommodation trading can be done in a manner that John purchased a stock from a company ABC at the rate of $60 per share. Now due to the approaching tax season John decides to sell the stock to Bill at a reduced price of $45 per share where as the actual market value of the stock is currently $65. The capital loss realized by Bill is 20 dollars per share that will result in the reduction of the capital. This loss of capital can be used by Bill to save and evade tax on any capital gains and the other investments made by Bill. When the Tax season is over John will sell the stock back to Bill at the same price that is $45 per share. This type of trading is also known as wash sale and is used to cheat taxation system.
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