Edward and Ruth Kelly - Page 13

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            Tybus v. Commissioner, T.C. Memo. 1989-309; Kobernat v.                                       
            Commissioner, T.C. Memo. 1972-132.                                                            
                  Mr. Kelly attempts to distinguish the many cases denying                                
            ordinary loss treatment under similar circumstances on the ground                             
            that he was a registered options principal.  He argues that his                               
            stock options fall within the literal terms of section 1221(1):                               
            "stock options are a Registered Options Principal's 'stock in                                 
            trade'.  Stock options are what a Registered Options Principal is                             
            primarily involved in."  Mr. Kelly's figurative use of the                                    
            statutory language finds no support in the case law interpreting                              
            it.  Property does not constitute "stock in trade" within the                                 
            meaning of section 1221(1) unless it is held by the taxpayer                                  
            primarily for sale to customers.  Van Suetendael v. Commissioner,                             
            152 F.2d 654, 654 (2d Cir. 1945), affg. a Memorandum Opinion of                               
            this Court; Wood v. Commissioner, 16 T.C. 213, 225-226 (1951).                                
            The functional significance of the registered options principal                               
            to the operation of the securities market and his relationship to                             
            a licensed dealer is not entirely clear from the record.  For                                 
            purposes of characterizing Mr. Kelly's trading losses, however,                               
            the only question is whether he was acting in the capacity of a                               
            dealer when he engaged in the specific transactions that produced                             
            the losses.  Laureys v. Commissioner, supra; Kemon v.                                         
            Commissioner, supra.  Mr. Kelly concedes that he did not engage                               
            in these transactions in his capacity as a registered options                                 

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