A more thorough explanation:

Definition: A wash transaction is a type of sale that is similar to a wash sale, which is defined under the term "sale" in legal dictionaries. A wash sale occurs when a person sells a security at a loss and then buys the same or a substantially identical security within 30 days before or after the sale. The purpose of a wash sale is to create a tax loss without actually changing the investor's position in the security. Similarly, a wash transaction is a sale that has no economic substance and is done solely for the purpose of creating a tax loss.

Example: An investor owns 100 shares of XYZ stock that have decreased in value since purchase. The investor sells the shares at a loss and then immediately buys 100 shares of the same stock. This is a wash transaction because the investor has not changed their position in the stock and has only created a tax loss.

Explanation: The example illustrates a wash transaction because the investor has not actually changed their position in the stock. The sale and purchase cancel each other out, resulting in no economic gain or loss. The only purpose of the transaction is to create a tax loss, which is not allowed under tax laws. Wash transactions are considered fraudulent and are illegal.