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

To: Colin Cody who wrote (306)	5/23/1998 12:56:00 PM
From: Monty Lenard	Read Replies (1) \| Respond to of 1383

Have you read Mayer v Comr; Moller v US; King v Comr; Paoli v Comr and Walker v Comr?"Sporadic trading will NOT constitute a trade or business" Colin, I have read the cases and agree with "sporadic trading" and would build my case on the following, A facts and circumstances test is applied to determine whether an individual taxpayer is merely an investor or whether his activities rise to the level of the trade or business of securities trading. The following factors are relevant to this determination: Higgins v Commr (1)the taxpayer's investment intent; (2)the nature of the income to be derived from the securities; and (3)the frequency, extent and regularity of the taxpayer's securities transactions. Moller v US Although traders and investors both hold securities in their own accounts, investors generally purchase securities for capital appreciation and income, regardless of short-term market developments, while traders tend to buy and sell securities with an aim to profit from the daily changes in the market. A trader's activities are directed toward short-term trading and an investor's are toward long-term holding of investments. A trader principally derives income from the sale of securities and an investor from dividends and interest paid on securities. The trader's profits are derived from the direct management of purchasing and selling. Colin, I am not trying to talk anyone into electing the trader status (and sure not soliciting business-don't want anymore <ggg>), just saying that I feel there is enough case law present to make a reasonable determination and have a good chance of coming out on top. (The Key Word is "reasonable"). Some of these people are making 5-10 round trips a day. The exposure is reclassification of business expense to Sch A with possible loss of all the business expense deduction if they don't qualify. But the investment club people need to be aware of Rev Rul 75-523 which I believe disallows trader status. "A taxpayer was a partner in an investment club partnership." Correct me on this, if I'm wrong. Monty PS You do a great job here and I hope everyone appreciates your efforts!