Day Trader Income Reporting: IRS Takes New Position.

Author:Phillips, Bernie
Position:Brief Article

Q. Has there been any change in the treatment of "Day Traders?"

A. YES! I hope this is the final interpretation on this issue. As you know, there has been a lot of controversy around day trader income reporting. In the October issue of the National Public Accountant, I wrote about the method that was recommended by the IRS. Since that time, the method has been revised and the IRS has taken a new position that benefits the trader.

The IRS has included the rules in the new Schedule D. In order to take advantage of the mark-to-market rules for the year 2000, the election needed to have been made by April 17, 2000. The mark-to-market election allows the taxpayer to use Form 4797, Part II. All transactions have to be shown. The gain or loss is ordinary. Expenses are to be reported on Schedule C, but not income. There will be no S/E tax imputed on the income. The instructions on how to make the mark-to-market election will appear in the 2000 IRS Publication 550. The requirements to be treated as a "Trader" are, and I quote:

"* You must seek profit from daily market movements in the prices of securities and not from dividends, interest or capital appreciation.

* Your activity must be substantial.

* You must carry on the activity with continuity and...

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