Hi,
The IRS is asking about these sales and proceeds.I'm depressed and confused about wash sales. Please help


01/08/07 MICROSOFT SELL 3,525 C $105,316.76 0.00
01/09/07 YAHOO! INC SELL 3,500 C $97,465.00 0.00
01/10/07 MICROSOFT SELL 3,500 C $103,764.81 0.00
01/10/07 YAHOO SHORT SELL 3,500 C $99,669.93 0.00
01/11/07 MICROSOFT SHORT SELL 2,750 C $83,425.43 0.00
02/01/07 GOOGLE SELL 170 C $85,160.38 0.00
02/01/07 GOOGLE SELL 175 C $84,515.40 0.00

TOTALS 17,120 shares$659,317.71


However, here are the transactions. As you can see, I ended up losing lot of money.
Now, how do I explain this to IRS. Please help
I also attached this in an excel. Thanks


01/02/2007  00:00:01 FREE BALANCE INTEREST ADJUSTMENT  19.01 $26,354.08
01/04/2007  15:57:16 Bought 3525 MSFT @ 29.82  -105122.5 -$78,768.42
01/08/2007  13:46:09 Sold 3525 MSFT @ 29.88  105316.76 $26,548.34
01/09/2007  10:55:51 Bought 3500 YHOO @ 27.65  -96782 -$70,233.66
01/09/2007  14:56:35 Sold 3500 YHOO @ 27.85  97465 $27,231.34
01/10/2007  10:23:16 Bought 3500 MSFT @ 29.67  -103852 -$76,620.66
01/10/2007  13:36:08 Sold 3500 MSFT @ 29.65  103764.81 $27,144.15
01/10/2007  13:43:21 Sold Short 3500 YHOO @ 28.48  99669.93 $126,814.08
01/11/2007  10:20:24 Bought to Cover 3500 YHOO @ 29.02  -101577 $25,237.08
01/11/2007  13:41:17 Sold Short 2750 MSFT @ 30.34  83425.43 $108,662.51
01/12/2007  12:31:32 Bought to Cover 2750 MSFT @ 31.17  -85724.5 $22,938.01
01/17/2007  07:11:11 MARK TO THE MARKET  -2845.07 $22,938.01
01/17/2007  07:11:11 MARK TO THE MARKET  2845.07 $22,938.01
01/18/2007  07:10:11 MARK TO THE MARKET  -1161.57 $22,938.01
01/18/2007  07:10:11 MARK TO THE MARKET  1161.57 $22,938.01
01/19/2007  08:31:23 MARK TO THE MARKET  -199.5 $22,938.01
01/19/2007  08:31:23 MARK TO THE MARKET  199.5 $22,938.01
01/22/2007  15:27:01 Bought 5 YHQBY @ 1.45  -735.75 $22,202.26
01/22/2007  15:37:41 Bought 145 YHQBY @ 1.5  -21865.75 $336.51

Just looking quickly at this it appears that you took some losses within 30 days of having purchased additional shares of the same security. That's known as a wash sale, and triggers limits on how much of a loss you can take on the sale. For example, it appears that you bought and sold 3500 MSFT on 1/10/07 at a loss of $70, and that you also bought MSFT on 1/4/07. Since that is within 30 days of the loss, you do not report the loss in the normal way. Instead, you add the $70 to the cost basis of that earlier purchase - so that lot of MSFT has a cost basis of $105122.50 + $70= $105192.50. This reduces the amount of gain you had when you sold that stock on 1/7/07.

You can read about wash sale rules here:
Publication 550 (2008), Investment Income and Expenses (http://www.irs.gov/publications/p550/ch04.html)