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the meaning of section 1221, and not inventory or property held
primarily for sale to customers in the ordinary course of a trade
or business. Based upon this determination, respondent concluded
that the losses on securities and futures transactions claimed by
petitioners on Schedule C of their Federal income tax returns
were reportable on Schedule D, and calculated petitioners'
deduction for net capital losses subject to the limitation under
section 1211. Petitioners contend that their losses incurred
during 1989 and 1990 were reportable on Schedule C because
petitioner functioned as a dealer due to the frequency of
transactions, the large dollar volume, the extensive time
devoted, and the methods used for transacting in the market.
Section 165(f) provides a deduction for losses from sales or
exchanges of capital assets, but only to the extent allowed under
sections 1211 and 1212. Section 1211(b) limits the allowance of
such losses to the extent of gains from such sales or exchanges,
plus the lower of (1) $3,000 ($1,500 in the case of a married
individual filing a separate return), or (2) the excess of such
losses over such gains.
The principal issue we must decide, therefore, is whether
the losses reported by petitioners for the years in issue from
dealings in securities and futures contracts are ordinary or
capital losses.
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Last modified: May 25, 2011