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direct benefit from the income tax refunds they received.
Mr. Kelly deposited the refund checks in his separate bank
account and used the proceeds to finance further options trading.
OPINION
Petitioners bear the burden of proof on all issues. Rule
142(a).
1. Character of Trading Losses
Respondent determined that the stock options sold by
Mr. Kelly during the years at issue were capital assets, and
that the net losses he realized were accordingly capital losses
subject to the limitations of sections 165(f) and 1211(b). We
sustain respondent's determination.
Under section 1234, unless an option to buy or sell stock
constitutes property described in section 1221(1), gain or loss
from the sale of the option is treated as gain or loss from the
sale of property having the same character as the stock would
have in the taxpayer's hands. Sec. 1234(a)(1), (3)(A). Section
1221(1) creates an exception to the definition of a capital asset
for
Stock in trade of the taxpayer or other property
of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of
the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course
of his trade or business;
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Last modified: May 25, 2011