TRADERS
ADVOCACY: TRADER RELIEF

GTT "virtual lobbying campaign" for "Trader Tax Relief and Corrections"

Executive Summary

Our main concern is to bring about tax relief for "traders in securities and commodities."

Over the last few years, Congress has passed many new laws that are quite beneficial to traders. Unfortunately, the IRS has done a poor job in translating those new laws into IRS tax code, regulations and revenues procedures. As a result, many traders have been unfairly penalized.

Congress passed beneficial tax laws for traders in 1997, allowing "qualified traders" to elect "mark-to-market accounting" (IRC 475 "MTM"). MTM accounting allowed traders to avoid the onerous "capital loss limitation" rules ($3,000 per year), "wash sales" and "straddle rules."

Unfortunately for the majority of traders, Congress' promised tax relief was "botched" by the IRS and their accountants. Without MTM ordinary tax loss treatment, many traders have been forced out of their trading businesses. During the market crash this past tax year, far too many traders lost their trading capital and were unable to replenish their trading accounts with net operating loss tax refunds – even though Congress intended them to be entitled to it.

That is simply not fair, and it can easily be fixed with your help. We need all traders and the media to get our message across to Congress and the IRS. Please give us 15 minutes of your time to send our standard e-mail to members of Congress and the IRS. If you are the media, please publish our message. If you have any questions about our campaign, please contact Robert A. Green, CPA, at rgreen@greencompany.com

Here is the problem and the solution in a nutshell:
Mark-to-Market Accounting (IRC 475) is the "default" method of accounting for "dealers in securities and commodities." In 1997, Congress recognized the growing body of online traders and realized that "traders" were in a business that was closer to "dealers" (frequent, continuous trading trying to take advantage of quick swings in market price) than "investors" (looking for capital appreciation and long-term capital gains rate benefits). Before the 1997 tax law changes made things better for traders, specific, beneficial tax rules only existed for dealers (IRC 475 MTM – ordinary gain and loss treatment) and investors (long-term capital gains benefits offset by capital-loss limitations, wash sales and straddle rules). Traders don't seek long-term capital gains rate benefits and they have tons of wash sales and straddles, so why penalize them with tax rules for investors?

In our view, Congress made a mistake by requiring traders to “elect” mark-to-market accounting. Why didn't Congress simply allow traders the same treatment as dealers – i.e., the ability to use MTM as the default method of accounting, without the need for an election? Perhaps it was because Congress was concerned about the vague definition of "trader" vs. "investor." The IRS has done a poor job of actually defining trader, and this has caused havoc for many traders and their accountants. Most traders did not even know there was a tax class for them, let alone an election they had to make by April 15 of the current tax year.

Because of the above confusion, most traders missed the MTM election. Many of these "cash basis" traders (i.e., those without MTM) lost their entire trading capital. Since they cannot carry back MTM net operating losses for tax refunds, they have been forced out of business.

Congress can fix this problem simply by changing the "transition rules" to allow all traders to use mark-to-market accounting, as a "default" method, without an election. This relief for traders will significantly increase the average trader's capital and bring fresh capital back into these desperate financial markets.

By the way, commodity traders are already allowed to carry back their trading losses three tax years, so it is onerous to securities traders to not allow them this type of carry-back relief.

Our campaign is picking up steam

The October 2002 issue of Active Trader magazine has a story about this: "GET WHAT YOU DESERVE. Are you one of the countless traders who have not received the tax relief granted to you by Congress in 1997? It's possible that your accountant has let you down - but so has the IRS. Find out what you missed out on, and how your participation in a new advocacy campaign might help you to get your deserved refunds.” By Robert A. Green, CPA.

Traders, Congress, the media or any others: If you would like more information or to help us reach our advocacy goals, kindly e-mail us at advocacy@greencompany.com or call (212) 658-9502. Thank you, Robert A. Green, CPA.