Humes Houston Hart - Page 7

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          T.C. 1026, 1032-1034 (1951).  Petitioner concedes on brief and on           
          stipulation that he did not hold his stock as inventory; he did             
          not sell to customers; and he did not hold any licenses or                  
          certifications within the securities industry.  We hold that                
          petitioner was not a dealer.  Therefore, the stocks petitioner              
          purchased and sold were capital assets in his hands, and the net            
          losses were capital losses.                                                 
               Consequently, if petitioner was engaged in the trade or                
          business of buying and selling stocks, it was as a "trader"                 
          rather than as a "dealer".  Unlike an investor, a trader's                  
          expenses are deducted in determining adjusted gross income rather           
          than as itemized expenses.3  Moreover, interest paid on loans               
          used to purchase or carry the trader's positions is not subject             
          to the investment interest limitations of section 163(d).  See              
          King, supra; Paoli v. Commissioner, T.C. Memo. 1988-23.                     
               In determining whether a taxpayer who manages his own                  
          investments is a trader, we consider the following nonexclusive             
          factors:  (1) The taxpayer's investment intent; (2) the nature of           
          the income to be derived from the activity; and (3) the                     
          frequency, extent, and regularity of the taxpayer's securities              
          transactions.  Moller v. United States, supra at 813; Mayer v.              
          Commissioner, T.C. Memo. 1994-209.  Thus, a taxpayer is engaged             

               3  In contrast to trade or business expenses, a taxpayer's             
          investment-related expenses that are deductible under sec. 212              
          are subject to a limitation under sec. 67(a) and do not reduce              
          alternative minimum taxable income.                                         

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