Edward S. Cullin - Page 7

                                                 - 7 -                                                   

                            It is determined that the amounts of                                         
                      $101,938.26 and $54,529.65 shown on Schedule C                                     
                      of your respective 1989 and 1990 income tax                                        
                      returns as research and experimentation to                                         
                      improve trading system formula for sale are                                        
                      not allowed because it has not been established                                    
                      that any amount was for an ordinary and necessary                                  
                      business expense.  Instead, the commodities                                        
                      futures transactions constitute capital assets                                     
                      and are includable as capital gains and losses on                                  
                      Schedule D.  Accordingly, your taxable income is                                   
                      increased $101,938.26 for 1989 and $54,529.65 for                                  
                      1990.                                                                              
                Respondent allowed petitioner to treat the losses as short-                              
                term capital losses deductible on Schedule D, Capital Gains                              
                and Losses.  The notice states as follows:                                               

                      It is determined that you are entitled to short-                                   
                      term capital losses in the amounts of $102,158.00                                  
                      for 1989 and $54,530.00 for 1990, limited to                                       
                      $3,000.00 for each of the years 1989 and 1990,                                     
                      resulting from commodities futures transactions.                                   

                As a consequence of disallowing the deductions that                                      
                petitioner claimed for his commodity trading losses,                                     
                respondent also determined that petitioner is liable for                                 
                additional self-employment taxes in 1989 and 1990, and                                   
                respondent allowed petitioner a deduction in the amount                                  
                of one-half of his self-employment tax liability in 1990.                                

                                                OPINION                                                  
                      The principal issue in this case is whether                                        
                petitioner's losses from trading commodity futures are                                   
                capital or ordinary.  Petitioner realized losses of                                      




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011