- 14 -
Second Circuit. As the latter observed in Seeley v. Helvering,
77 F.2d 323, 324 (2d Cir. 1935):
So far as * * * [the taxpayer] traded in securities on his
own account, his sales were on the exchange to persons whom
he did not even know; these were not his customers, but
customers of the brokers who bought of him. * * *
Faced more recently with the same argument, this Court stated:
[The taxpayer] would have us look through Merrill Lynch
and Prudential-Bache [the taxpayer's brokers] to the
nameless members of the commodity markets who
ultimately purchased the commodity contracts * * * [the
taxpayer] sold and sold the commodity contracts * * *
[the taxpayer] purchased. Even were we to so look
through Merrill Lynch and Prudential-Bache, * * * [the
taxpayer] would fare no better, as members of an
organized exchange who buy and sell securities from a
taxpayer are not the taxpayer's "customers" within the
meaning of section 1221(1). * * * [Swartz v.
Commissioner, supra.]
Accordingly, neither petitioner's broker-dealers nor their
customers constitute petitioner's customers for purposes of
section 1221(1).
In Kemon v. Commissioner, 16 T.C. 1026, 1032-1033 (1951),
this Court provided a delineation of the customer requirement and
its bearing on the dealer/trader distinction for holders of
securities as follows:
In determining whether a seller of securities
sells to "customers," the merchant analogy has been
employed. Those who sell "to customers" are comparable
to a merchant in that they purchase their stock in
trade, in this case securities, with the expectation of
reselling at a profit, not because of a rise in value
during the interval of time between purchase and
resale, but merely because they have or hope to find a
market of buyers who will purchase from them at a price
in excess of their cost. This excess or mark-up
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011