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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (1764)	1/27/1999 11:13:00 PM
From: Richard Joslin	Read Replies (1) \| Respond to of 5810

New IRS Guidance on Trader Mark-to-Market Election The IRS has issued proposed regulations regarding the mark-to-market election for traders of securities. The principal development in the regulations is that the IRS/Treasury anticipates requiring taxpayers to file a IRS form to make the election not later than 2 1/2 months after the beginning of the year that the election is made. Since the form has not yet been developed, a revenue procedure will be issued as interim guidance. Since it is unlikely that the IRS will impose the 2 1/2 month rule for 1998, it is prudent to await explicit IRS guidance. Traders contemplating making such election in 1998 should delay filing their 1998 tax return so that any election statement included with the return will be respected by the IRS. Invalid elections will be disregarded and improper elections may prove disastrous. An election which is not valid will recharacterize gains and losses from ordinary to capital in character. An election which is valid but improper, i.e. a trader mark-to-markets securities that are held in the trading business as well as a security(s) not held in such business (held for investment rather than for trading), will defer recognition of the mark-to-market adjustment to the investment security and treat any mark-to-market gain as ordinary. (A trader may want to treat a security as not held in the trading business since if held long term, the security would give rise to gain taxed at 20% rather than ordinary mark-to-market income taxed up to 39.6%). It is uncertain when the revenue procedure that details how to make the trader mark-to-market election will be issued. This guidance should clarify the procedures necessary to make the election as well as the timing of including the income or loss required when adopting the new method of accounting. (The trader portfolio is marked to market on the first day of the year. This amount of income or loss (termed a Section 481(a) adjustment) is spread over a period of time, generally between one to four year years). The new proposed regulations (1.475(f)-1 and 2) will be effective for 1999 calendar year filers.