Tried a real "covered shares" sale at Schwab. Good news, bad news.
The bad news is that Schwab's online system has limitations, and the IRS rules are a bit more confining than I had understood them to be. The good news is that I can describe what Schwab does more clearly, and I'm eating only a 7c wash sale.
For mutual funds, Schwab's system seems to report "Account Default" as a fund's cost basis method. Unfortunately, there doesn't seem to be a way to coax out of the system what that account default method is - it is the method you specified as a default (or average cost, if you didn't specify any). Schwab had misinterpreted this as meaning their default method (i.e. average cost) when I spoke with them before. Also, there is still not a way to indicate specific shares online when selling - you still need to follow up with a call (before settlement).
I spoke with someone at Schwab who has a very good handle on this. It seems that, if your default method isn't average cost, then you can follow up with the call as above. But if your default method is average cost, you're stuck once you make the trade. You can change the cost method to/from average cost only going forward (for future trades). Further, IRS rules say that has to be in writing; though that can be electronic "writing", Schwab requires a written letter, and it only becomes effective the day after they get it. (The effective date is from my reading, not from my conversation.)
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