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

To: Colin Cody who wrote (477)	8/29/1998 11:15:00 PM
From: Kaye Thomas	Read Replies (1) \| Respond to of 1383

And just who were you expecting to respond???? (g) Officially the IRS is still studying these questions, so they won't give out any answers. But I think it's pretty much a no-brainer for the IRS to answer all of these questions in the negative. There are whole slew of accounting elections that are now covered by uniform procedures laid out in excruciating detail in Rev. Proc 97-37. If you can plow through the whole thing you're a better man than I am. But you only need to get as far as section 2.04 to see that retroactive elections aren't permitted. And if you look at Rev. Rul. 90-38, you'll see that it's the IRS position that you can't change a method of accounting retroactively without permission even if the method you're changing from was improperly elected and the first year to which the method applies is still open. In short, although there's no guidance on the question at this time, I would anticipate that the IRS will rule that the 475 election can't be made on a delinquent return and can't be made on an amended return, regardless of whether the taxpayer held open positions at the end of the year. In this context, "can't" means you would need permission from the IRS, which normally isn't granted without some good reason and a showing that the IRS isn't harmed by granting the request. In other words, if you're simply late in figuring out that the election would have saved you money, you're probably out of luck. What's interesting to me is that all of these elections are permitted on the return for the first year to which they apply. If the IRS permits that procedure for the 475 election, there's no need to make it "just in case" you have a capital loss greater than $3,000. If that's your only reason for making the election, you can wait until you actually have a year like that and decide then whether the election makes sense. I raised this point informally with a key player in providing guidance on this issue and she didn't seem to be bothered by the notion that a trader could retroactively change a capital loss into an ordinary loss that isn't subject to the $3,000 limit -- given that the trader then is stuck with the election going forward. So I'm guessing the IRS will leave things where they (apparently) are, with the election permitted on a timely filed return for the first year to which it applies. That raises another interesting point, though. If you think you might make the election, you should act as if you've already made it in one important respect: identifying any positions that are not to be considered part of your trading activity. Otherwise it's too late to identify when you make the election. Hey, is this great stuff or what? Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com