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Re: The "Trader Status" audit



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Sorry, forgot to CC RT on this:

------- Forwarded Message Follows -------

To:             	TBTesser@xxxxxxx
Subject:        	Re: The "Trader Status" audit
Copies to:      	omega-list@xxxxxxxxxx
Send reply to:  	fritz@xxxxxxxx
Date sent:      	Fri, 17 Sep 1999 10:03:50 -0600

Ted, thank you for an *incredibly* informative post.

Re: the specific "trading an IRA" question I raised -- I suspect this 
is of interest to a lot of people, so I'd like to pursue it a bit 
farther.

> Also if someone trades only IRA accounts there is a whole other
> consideration, which needs to be addressed. There has never been a
> case on the books that I know of, but I have been told from the
> head of the IRS division on trading policy that if they find you
> Trading your IRA and considering yourself in the business of
> TRADING then they might disallow the IRA because you should not be
> running a business in a retirement account. 

Gack!!

I don't intend to have another period of "trading only an IRA," but I 
fully intend to trade my IRA alongside my regular trading accounts.  
And I suspect I'm not the only one.

So allocating activity between "trading" and "investing" (parceling 
out the writeoffs &etc) might help with this.  But I have another 
idea.

Let's say I'm NOT a trader, just someone with an IRA who likes 
futures.  If I have a CTA trade the IRA for me, that's peachy keen.  
I'm just a client of the CTA, and I pay the guy 20% of profits or 
whatever (out of the IRA).  I assume the IRA has no problems with 
that.  I've done it before with CTAs and with a manager who traded 
stocks.  It's really no different than paying 3% to Fidelity for 
mutual funds.  We just drew up a document that allowed the IRA to pay 
the CTA his fee, just like the IRA pays the commissions on each trade.

What if the "CTA" who trades it is *me*?  (Or, rather, my 
corporation, wherein I run my trading business.)

Can I trade my IRA as part of my "trading business," taking full 
credit for the trading activity, and just have my IRA pay my "trading 
business" 20% of profits just like I did for the CTA?  In other 
words, if I separate it out as a business activity and charge for the 
service, that would seem to solve the problem.  Especially since the 
entity doing the trading and charging the fees (my corporation) is 
separate from the entity who owns the IRA and pays the fees (me).

That would have the benefit of removing any question about whether my 
trading activity was all tax-qualifying trading activity, it would 
simplify the return since I wouldn't have to divvy up my trading 
expenses into "trading" and "investing" pieces, and it even increases 
my bottom line by extracting some penalty-free $$ out of the IRA.

It seems like a great answer to me.  So probably the IRS wouldn't 
allow it.  :-\

Getting the 20% out of the IRA could be a challenge.  As I said, I've 
done it with a "real" CTA, but I don't know if it would be more 
difficult to do it with a non-registered trading entity (my corp).  
Any guesses on that?

Thanks!!

Gary