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taxpayer carries on an activity continually and regularly with
the intent of making a profit, he is engaged in a trade or
business for tax purposes, and losses from the activity are
deductible without limitation. He wondered whether Groetzinger
affected the deductibility of the losses he incurred in his
voluminous options trading. Mr. Kelly brought the case to the
attention of Yale Auerbach (Auerbach), a certified public
accountant who had regularly prepared his tax returns since the
early 1950's. Auerbach read Groetzinger and told Mr. Kelly that
it did not apply to his options trading; in the absence of
authority to operate his own brokerage business, he would
continue to be a trader for tax purposes, and must treat his
losses as capital. Mr. Kelly informed Auerbach that he was a
registered options principal, which meant that he was "registered
to deal in options". Auerbach was unfamiliar with the nature of
this position, but on further questioning, Mr. Kelly satisfied
him that as a registered options principal he was qualified to
establish his own office and "deal as any other broker does".
Auerbach advised Mr. Kelly that under those circumstances he
could adopt the position that he was engaged in a business and
that the trading losses were ordinary. Subsequently, Mr. Kelly
also consulted Carroll Baymiller (Baymiller), the attorney who
had represented the taxpayer in Groetzinger. The record does not
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