- 28 -
Douglas v. Commissioner, 86 T.C. at 763; cf. Perry v.
Commissioner, T.C. Memo. 1992-258.
Mrs. Kelly conceded that the options trading losses reported
on the joint returns were real. She contended, however, that the
deductions were "phony" because they were based on "outright
deception, followed by obfuscation": That in support of the
deductions for 1986 and 1987, on Schedule C Mr. Kelly
fraudulently represented that he was an options dealer, and that
in support of the deductions for 1989 and 1990, he deliberately
omitted to report the nature of his business on Schedule C in
order not to jeopardize the deductions.
There are a number of serious weaknesses in this argument.
First, the argument applies only to the first 4 of the years at
issue. There is no suggestion of deliberate misrepresentation in
the reporting of Mr. Kelly's losses for 1991 and 1992.
Second, the argument fails to take account of the fact that
on the joint returns for the 3 years preceding the first year in
which Mr. Kelly adopted ordinary treatment for his options
trading losses, he consistently reported his business as
"dealer". Yet he did not use this status to claim any tax
benefits for these years. The inference that for 1986 and 1987
he misrepresented the nature of his business with fraudulent
intent is therefore not compelling.
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