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Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: K. M. Strickler who wrote (83)	2/19/1998 1:43:00 AM
From: Colin Cody	Respond to of 1383

KM, I think the following was discussed E.mail and not on the BB, so I'll repeat it here. . In an IRA there SEEMS to be some reason FOR EXTREME CAUTION in operating a Trade or Business a/k/a STOCK TRADER. . I say SEEMS because I am not any kind of expert in IRA taxation, so I'll just pass this along for anyone to do their OWN research. . While I had my file open the other day to post a couple citations here on the BB, I came across this situation of a Pension Plan that through a chain of ownership ran a Securities TRADER trade or Business. Apparently they ran into big trouble with the IRS over this. . Something to do with running a TRADE OR BUSINESS in the Plan (or IRA for your purposes). Running a trade or business in an IRA creates Unrelated Business Income Tax UBTI. i.e. the IRA must pay tax on the income from being a TRADER. (please do your OWN research about this) . The cite is General Counsel Memorandum GCM 39597 2/4/1987 Electronic citation: 98 TNT 23-9 . The situation dealt with UBTI, Tax Exempt Status, Trader Status. . For instance, an IRA may not have a Margin Account, and other restrictions that a trade or business may be involved with. . If this might apply to you, you might want to see your own tax advisor in your area to review it. . The tax is due if your IRA made more than $1,000 in a year from a trade or business. File form 990-T to pay the tax. . I think the issue may hinge on the position that an IRA may not have CAPITAL GAINS, but rather all IRA income may be ordinary in nature???? That's all I have to say about this. If you TRADE actively as a DAY TRADER in your IRA, I strongly suggest you look into this. The penalties are potentially very severe. . Colin