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

To: kaz who wrote (2194)	5/11/1999 12:55:00 AM
From: Colin Cody	Read Replies (2) \| Respond to of 5810

kaz, Trader Status is tricky and unique. Most regular taxpayers really need a tax pro to do their taxes, BUT many, many people MAY do them themselves. My web site offers tips on how to do that. I hope to add much more during the year. BUT once you are selected for AUDIT, that's it. No more doing it yourself! My advice is to immediately retain a CPA thoroughly familiar with Trader Status. You are likely causing much "damage" as you talk with the "friendly" agent. For instance, at this stage the audit quite likely can not be transferred to a CPA who is not in your home town, unless it is being done by mail??? Upon notice of ANY inquiry by the IRS the first thing a taxpayer should do is retain a CPA and transfer all the books and records to that CPA. Then the audit is hopefully moved to the CPAs home office, away from the taxpayer. In your case, if this is a "MAIL audit", you can retain myself or any CPA, EA or Tax Attorney who is familiar with Trader Status and is willing to pickup "the mess" right in the middle of the audit. If this is an OFFICE audit or a FIELD audit where you have actually met face to face with an agent (the more agents you have seen the worse it is getting) then you should immediately retain a CPA familiar with trader status, and if you can't find one, go to a large CPA firm and pay the price to have them get educated while billing you. You really MUST NOT attempt to deal with the agent(s) directly. The CPA needs to review your work to first fix any problems with the return as filed, then s/he needs to deal with the IRS audit issues, you will sign a power of attorney for the CPA and from then on all communication between the IRS and you stops, the audit is put on "hold" to give the CPA time to get up to speed, and then your tax pro represents your best interests. At this point you can/SHOULD consider the "bottom line" here. The cost of representation at this stage may be more than the IRS is looking for in taxes??? The longer you wait, the worse it will get and the representation costs just go higher. Sorry to be the bearer of the bad news. DANGER of just settling now w/o a CPA is that your mark-to-market election will likely be killed by the audit (per the way they are treating you), meaning your following year tax return may need to be amended, and then you might elect MTM for 2001 if you want to. Anyway, Good Luck with it. Let me know how you make out. Always interested in what the IRS audit dept does with a trader status return. Colin Cody, CPA traderstatus.com

To: kaz who wrote (2194)	5/11/1999 11:48:00 PM
From: Nelson Chang	Read Replies (1) \| Respond to of 5810

Paul, Are you being audited for the tax year 1998? And if so, how long did it take for the IRS to notify you that you are being subject to an audit from the time you filed your 98 taxes? Just curious... ...and of course best of luck in dealing w/ these guys. Regards, Nelson

To: kaz who wrote (2194)	5/12/1999 4:39:00 PM
From: Robert A. Green, CPA	Read Replies (1) \| Respond to of 5810

Dealing with your IRS exam - greencompany.com tradertax.com If you are a qualified Trader in Securities and you properly elected mark-to-market treatment on your 1998 tax return in accordance with the IRS temporary regulations, you are entitled to that trader tax treatment. Colin's ideas are correct in general for tax exams, but you might save some time and trouble by ending this exam fast. First, ask the IRS agent if he/she is familiar with IRS Proposed Regulations (99 TNT 18-13, PRO) - MARK-TO-MARKET ACCOUNTING FOR DEALERS IN COMMODITIES AND TRADERS IN SECURITIES OR COMMODITIES - See entire temporary regulation below. If you were entitled to use this provision (see above) then tell the agent that it applies in your case and the agent should not contest the tax law. For the agent to argue that self-employment taxes apply means that they are not familiar with the tax law. The 1998 Tax Act specifically stated that self-employment taxes do not apply. I agree with Kaye's points and this could be part of your problem. If you followed our Trader Tax Return Examples Guide Examples, you would have reported all trades on Schedule D and then under mtm transferred the trading activity to a note and then to a Section 481 adjustment and then to Schedule C. This is the correct way and like Kaye points out (and we point out in our Guides) the IRS can reconcile your proceeds to the Form 1099. A reminder for all Traders and as you can read below in the temporary regulations, you need to file a correct mtm Trader tax return to successfully get trader tax benefits. We recommend that all Trader purchase our Trader Tax Return Examples Guide as a start. greencompany.com Some Traders read the Guide and then need further help reporting trader tax status correctly. Form 3115 and Section 481 adjustments can be confusing to some. Many traders should do what Barrons recommended in this weeks Barrons and that is consider our Trader Tax Solution Package. interactive.wsj.com (you need to be a Barron's subscriber) greencompany.com It is a one hour consultation that can also come with our Trader Tax Guide & Questionnaire (to determine that you are a Trader) and our Trader Tax Return Examples Guide (to show you how to file). Read about the package at our Web site and in Barrons. If you file your own return with TurboTax, you can send us a copy and we can make sure you are filing it correctly. No one likes to get IRS notices. We were recently engaged by a Trader to defend his trader tax return that he self prepared to the IRS. It sounds like a similar case to Kaz. He lives in California. He signed up for our Trader Tax Solution Package and in that one hour time, we won the case and it was closed with full acceptance of his trader tax return. He signed a Power of Attorney and we sent a one page letter to the IRS on his behalf. Next, we heard he won the case. It was that simple. Of course, Kaz's case could be more troublesome as Kaye pointed out. It still can be fixed with an amended return. If you need our firm to help you, simple mail us a copy of your tax return. If you are a trader and you filed wrong or right, we will help you fix this matter with the IRS. All you may need to do is purchase the Trader Tax Solution Package. We are serious about the word solutions. Reminder about mtm - Check out our Not too late? section at our Web site. We may still be able to help you with mtm for 1998 and 1999. greencompany.com Take care, Robert A. Green, CPA tradertax.com greencompany.com rgreen@greencompany.com IRS Proposed Regulations (99 TNT 18-13, PRO) - Below text is a direct quote from the regulation. MARK-TO-MARKET ACCOUNTING FOR DEALERS IN COMMODITIES AND TRADERS IN SECURITIES OR COMMODITIES Subject: Accounting periods and methods; Financial instruments tax issues Code Section: Section 475 -- Mark-to-Market Accounting IRS Issues Proposed Regs on Electing Mark-to-Market Accounting Summary The Service has issued proposed regulations (REG-104924-98) on electing to use the mark-to-market method of accounting. The proposed regs affect commodities dealers as well as traders in securities or commodities. The Restructuring Act also added new section 475(e) and (f). Under those provisions, securities traders and commodities traders and dealers may elect mark-to-market accounting similar to the accounting method currently required for securities dealers. For securities traders, the proposed regs provide that the principles underlying the rules and administrative interpretations applicable to securities dealers also apply to traders that make an election under section 475(e)(1). The regs also provide rules for identifying investment securities as exempt from mark-to-market accounting. Because of the fungible nature of some securities, the regs include a special rule for identifying securities held other than in connection with the electing trader's trading business when the electing trader also trades other of the same or substantially similar securities. Rules addressing the consequences of improper identification of securities are also included. For commodities traders, the proposed regs specify that the same rules that apply to electing securities traders also apply to electing commodities traders. The regs also include a special character rule for traders in section 1256 commodity contracts who elect mark-to-market accounting for their businesses. Regarding gains and losses, the proposed regs provide that gain or loss for a security that is marked to market under section 475(f)(1)(A) is ordinary income or loss. Accordingly, if an electing trader disposes of a security before the close of the tax year, the gain or loss is ordinary income or loss. Regarding elections, the proposed regs clarify that if a dealer in securities also has a securities or commodities trading business or a commodities dealing business, the dealer may make an election for that business. When making mark-to-market elections, commodities dealers and traders in securities or commodities must follow IRS prescribed procedures. Interim procedures, the Service notes, will be provided in a revenue procedure. The proposed regs in reg. sections 1.446-1(c)(2)(iii), 1.471-12, and 1.475(c)-2(d) apply to tax years ending on or after January 28, 1999. The proposed regs in reg. sections 1.475(e)-1 and 1.475(f)-2 generally apply to securities or commodities acquired on or after March 1, 1999. The rules on the time and manner for making mark-to-market elections are generally applicable tax years ending on or after January 28, 1999. The Service invites comments on the proposed regs. In particular, it wants comments on (1) whether and under what circumstances, it may be appropriate for dealers in physical commodities to identify commodity derivatives as held for investment; (2) whether there are circumstances under which a specific rule applicable to securities dealers shouldn't apply to electing securities traders; (3) whether and under what circumstances a securities trader could satisfy the burden in section 475(f)(1)(B)(i); (4) the manner in which securities are identified as not held in connection with trading activities; and (5) the advisability of extending the special rule for fungible securities to all securities. A public hearing on the proposed regs is scheduled for June 3, 1999, at 10 a.m. in Room 2615 of the Internal Revenue Building,Washington. Individuals interested in speaking at the hearing must submit written comments and outlines of topics to be discussed by May 13, 1999. Comments and outlines may be sent to CC:DOM:CORP:R (REG-104924-98), Room 5226, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be sent to the IRS's Web site at www.irs.ustreas.gov/prod/tax_regs/comments.html.