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

To: kaz who wrote (2198)	5/12/1999 3:56:00 PM
From: Kaye Thomas	Respond to of 5810

Don't worry, harmless types like you end up in minimum security prison. Allow me to take a wild stab at what's going on. First, you put your short-term gains on Schedule C, so that means your Schedule D didn't reflect sale proceeds large enough to match your Forms 1099-B. Possibly that's why your return got kicked so fast, but could be something else. Anyway, the suggestion that this "inquiry" (avoiding the "A" word) has anything to do with a refinement of IRS position on traders is giving them too much credit. More likely the person handling this for the IRS at this point is clueless about trader status. Why else make the remark that self-employment tax would apply? I have no idea whether your situation makes your claim to trader status a good one, a bad one, or in the gray area (as many are). I'm concerned about the fact you had long-term gains on Schedule D, however. For one thing, the mere fact that you had long-term gains casts doubt on trader status. One of the main things the courts look for is that nearly all your activity was very short term. Moreover, even assuming you can secure trader status (once you find someone at the IRS who knows what that is), they may tell you that your long-term gain has to be treated as ordinary income (on Sched C, along with the short-term gain). You're not allowed to choose ordinary, mark-to-market treatment for some positions but not others — unless you take the steps necessary to identify those positions that are not part of your trading activity. Anyway, you're off to a good start with the strip-o-gram. Keep up the good work. Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com