|
PureBytes Links
Trading Reference Links
|
"I'd also think that to make this strategy worth while you've got to make
signifcant money. For people who make hundreds of thousands a year trading,
it might be viable. For someone making less than 50K it might not be as
viable due to the cost (tax reports -- one for each corporation -- the
General Partnership and each LLC at around $3-500/per, accountant fees,
lawyers fees, payroll?, cost of maintaining a business in Nevada and in
general, etc.) associated with maintaining a complex business structure such
as this one."
But if you're running your trading business as purely a tax shelter and have
paper losses each year then it might be just what the doctor ordered.
> -----Original Message-----
> From: Brian Massey [mailto:bnm03@xxxxxxx]
> Sent: Tuesday, March 30, 1999 11:12 PM
> To: List, Omega
> Subject: RE: It must be spring!
>
>
> "Family Limited
> Partnership with an LLC as General Partner for trading vehicles in many
> cases.
> When used in conjunction with a separate Nevada entity this combination
> oftentimes affords the Trader a unique combination of tax relief, asset
> protection, privacy, and flexibility."
>
> Funny you should mention this. I recently talked to a Seattle lawyer who
> said one of his clients, a very well-known promoter of market
> seminars whose
> probably written at least 3 (perhaps 4 books on trading) and who has most
> likely equated the idea of a bear market with "Balogne", actively promoted
> Nevada corporations and LLC's as a way to protect and shelter trading
> income. This well known promoter helps his clients establish GP/LLCs and
> Nevada corps for around 3-5K a pop (and maybe more by the time you add it
> all up). When I asked this lawyer (who came across extremely
> well) if there
> were benefits to Nevada corps he vehmenantly disagreed saying
> that he could
> detain documents from a Nevada corp as easily as he could detain documents
> of a corporation in another state. To him, Nevada corps offered little
> additional protection and he implied the whole idea was a lot
> less valuable
> then what was beig said to sell it. He went on to say that he has
> repeatedly pleaded with his client to stop promotig this idea (because he
> didn't want to have to defend it in court) but that his pleas
> have fallen on
> deaf ears.
>
> The point of this isn't who this lawyer represents but that
> someone with the
> credibility this man has disagrees with this strategy as his
> client promotes
> it (Neavada corp, General Partnership, LLCs).
>
> I'd also think that to make this strategy worth while you've got to make
> signifcant money. For people who make hundreds of thousands a
> year trading,
> it might be viable. For someone making less than 50K it might not be as
> viable due to the cost (tax reports -- one for each corporation -- the
> General Partnership and each LLC at around $3-500/per, accountant fees,
> lawyers fees, payroll?, cost of maintaining a business in Nevada and in
> general, etc.) associated with maintaining a complex business
> structure such
> as this one.
>
> Food for thought.
>
> b.
>
> > -----Original Message-----
> > From: TBTesser@xxxxxxx [mailto:TBTesser@xxxxxxx]
> > Sent: Tuesday, March 30, 1999 9:52 PM
> > To: omega-list@xxxxxxxxxx
> > Subject: It must be spring!
> >
> >
> > As usually happens around this time of year, I am starting to see a
> > preponderance of misinformation about what Traders can and can
> > not do on their
> > tax return. I don't claim to be the ultimate authority on this
> > stuff, just a
> > CPA with about 20 years of experience in doing tax returns for Traders.
> > Therefore, I can tell you what I have been doing for most of
> > those years (and
> > yes, Robyn, I do sign the returns as well).
> > I am considered to be an experienced tax practitioner, as
> > well as a Trader
> > who has made my living doing both for the past twenty or so years
> > (and yes
> > Mr. Abraham I still do actively trade. Was it the time you stayed
> > late for a
> > free consultation after one of my seminars that you determined I
> > "no longer
> > traded", or have you started getting copies of my trade confirms?)
> > In any event, as a tax professional, I have written several
> > books discussing
> > "Trader Status," (The Trader's Tax Survival Guide, as was
> > mentioned several
> > times recently on the Omega List, and it's follow-up The Trader's Tax
> > Solution, which will be out shortly). My firm also handles
> the filing of
> > several hundred individual and corporate tax returns, each year,
> > many of whom
> > are Traders. If the situation merits, we file the entities as they are
> > entitled to be filed — under the distinction of "Trader Status."
> > "Trader Status" is a subjective designation which is not
> > clearly defined in
> > the Tax Code. It is the Supreme Court and the various District
> Tax Courts
> > which have defined "Trader Status" and have given the right to
> > the investor to
> > claim it under certain circumstances. There have been hundreds
> > of such court
> > cases since the 1930's starting with Snyder vs. The Commissioner,
> > 1935, in
> > which the Supreme Court stated that a taxpayer "can be involved in the
> > business of trading securities".
> > The problem with interpreting these court cases is that the
> > courts have
> > reserved the right to make a final determination whether someone
> > is or is not
> > qualified to claim "Trader Status." Also the rulings have been
> > contradictory,
> > and in fact may be somewhat outdated now due to changes in the
> > tax law, and
> > the changes in technology that have transpired over the past few years.
> > Nonetheless each Trader is evaluated on a case-by-case basis and
> > the Court
> > takes into consideration factors such as:
> > 1. Frequency of trades
> > 2. Duration of trades (long or short term)
> > 3. Quantity of trades, and several other equally important factors.
> > The courts have basically stated that a Trader is "one who
> > trades his own
> > account on a frequent, regular and continuous basis, with a
> > substantial number
> > of short-term trades." Unfortunately, they never quantify the
> amount they
> > consider substantial, nor do they tell us what will qualify as
> > being frequent,
> > regular and continuous. They also never elaborate on the time
> > period that is
> > considered short term (be it a day, a week, a month or a year),
> > although for
> > tax treatment it is a year or less.
> > Oftentimes the front line IRS tax examiner is not familiar
> > with any of these
> > cases, nor with the investor's right to claim he is trading as
> a business.
> > Most of the time the auditor confuses "Trader Status" with a
> professional
> > floor trader.
> > It was just in The 1997 Tax Act that the Internal Revenue
> > Code specifically
> > mentioned the Trader. It was under Code Section 475(f) where
> > Congress granted
> > Traders the right to mark to market their stock positions in the
> > same manner a
> > floor trader. They also stated,
> >
> > "Traders in securities (used generically to cover options,
> > futures, options
> > on futures, and the like) generally are taxpayers who engage in
> a trade or
> > business involving active sales or exchanges of securities....
> > rather than to
> > customers."
> >
> > Furthermore, on December 17, 1997 the Joint Committee on
> > Taxation issued its
> > report (aka the Blue Book). This publication is 549 pages long
> > and explains
> > the new tax law. Once again they reiterated that Traders are entitled to
> > certain benefits under the new law.
> > They also put to rest the issue of paying social security
> > tax on trading
> > profits once and for all, when on page 181 (Paragraph 1) they
> > stated that it
> > was "not their intent" to have off -the- floor Traders pay this
> tax, even
> > though they would be considered as businesses. They stated that
> > trading gains
> > would not be considered in determining an individual's "net
> earnings from
> > self employment".
> > Do not take my word for it, look it up in the Tax Code. If
> > anyone has an
> > issue with whether or not a Trader "trading his own account" is to be
> > considered a business, or feels it necessary to pay Self
> Employment Tax on
> > their profits, perhaps they should have a word with Congressmen
> > Bill Archer of
> > Texas or William Roth of Delaware who wrote the Blue Book Report.
> > In it both
> > these Congressmen, as well as the other eight on the committee,
> > interpreted
> > the law similar to how we do.
> > We have filed thousands of tax returns under the
> > distinction of "Trader
> > Status" over the past ten years that I have run my own CPA firm.
> > We have also
> > turned down thousands of potential "Trader Status" tax returns
> > because they do
> > not meet the criteria for claiming this designation. We use our own
> > proprietary Trader Evaluation Questionnaire to gather information
> > necessary
> > arrive at this subjective determination. And it is only after years of
> > experience in the field and in the audit arena that I feel
> > qualified to do so.
> > I must tell you that if I decide someone qualifies as a
> > Trader, I am 99%
> > confident that I can defend that determination in an audit or an appeals
> > hearing. Over the years we have only had a handful of audits
> > that have been
> > disallowed, and the only reason we have not been successful in
> > defending them
> > is that the cost of doing so would have outweighed the benefits
> > in terms of
> > billable hours. I must also say that the audit rate involved in
> > filing as a
> > Trader is no more so than the rate of audit we have with our
> ordinary tax
> > clients.
> > With regard to the issue of an LLC, or whether or not to
> > incorporate, that is
> > a topic that is beyond the scope of this forum to discuss. Each person's
> > circumstance will have to determine whether or not an entity
> other than as
> > sole proprietor is appropriate for them. I do have a great deal
> > of experience
> > with this topic, and have recently favored using the Family Limited
> > Partnership with an LLC as General Partner for trading vehicles
> > in many cases.
> > When used in conjunction with a separate Nevada entity this combination
> > oftentimes affords the Trader a unique combination of tax relief, asset
> > protection, privacy, and flexibility.
> > And finally, as for "Dr.OEX" who "works for the CBOE and
> > does lots of public
> > seminars", I find it unfortunate that misinformation is being
> > disseminated by
> > someone who might be viewed as an authority. This is not
> > uncommon, though;
> > the issue of Trader Status is one of the least understood areas
> of the Tax
> > Code.
> > As far as my book "being a farce in the investment
> > community", the only real
> > farce in the investment community is that some people would spend
> > all their
> > time trying to squeeze the last dollar out of a trade, and then
> > not pay enough
> > attention to the details of the tax law to know how much of that
> > profit they
> > could keep.
> > The benefits of filing as a Trader far and above outweigh
> > the downside risk
> > if the taxpayer qualifies. It often saves thousands of dollars,
> > and it is one
> > of the last remaining tax breaks available for Traders. I have
> had cases
> > where the difference between filing as a Trader and as an
> > investor has been
> > worth hundreds of thousands of dollars per tax return.
> > As far as the "Doctor's"statement that he has "never met
> > anyone who has
> > successfully survived an audit", perhaps all the people he knows
> > are going to
> > him for tax advice. I have won the Trader Status issue for many
> > clients on
> > all levels with the IRS. In fact, I just came out of appeals on
> > a case which
> > won the taxpayer over a hundred thousand dollars in past due refunds.
> > I certainly would agree with the "Doctor's" advice given in
> > the last sentence
> > of his letter which is to "Be very careful ..."
> > Trader Status is nothing you want to fool around with
> > yourself. I might also
> > add that defending oneself in an audit with the IRS is also
> probably not a
> > good idea — especially if there is any kind of substantial money
> > at stake.
> > In my opinion, that advice is akin to warning somebody who
> > has a heart
> > condition not to perform open heart surgery on himself, but
> > rather to seek the
> > assistance of an experienced cardiologist. Don't you agree Doctor?
> >
> > Ted Tesser, CPA
> >
> >
> >
>
|