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1221(1) with respect to which a hedge could be taken, under the
holding of Arkansas Best.
Petitioner also cites section 1236 to support his contention
that he is entitled to ordinary loss treatment, on the grounds
that he did not identify any securities sold in 1989 and 1990 as
held for investment, as provided in that section. Section 1236
does not help petitioner's case. The operative provisions of
section 1236 do not confer dealer status; they presuppose it, and
go on to provide a mechanism under which a dealer can obtain
capital treatment for certain assets in inventory by identifying
them in advance as held for investment. Failure to make a
designation under section 1236 is simply not probative in
determining whether a taxpayer is or is not a securities dealer.7
The second issue for decision is whether petitioners are
liable for an addition to tax under section 6651(a)(1) for each
of the taxable years in issue. Section 6651(a)(1) provides an
addition to tax for failure to file a Federal income tax return
by its due date (determined with regard to extensions), unless
the taxpayer shows that such failure was due to reasonable cause
7Sec. 1236 itself contains no definition of a securities
dealer. However, the regulations thereunder, at sec. 1.1236-
1(c)(2), Income Tax Regs., cross-reference the regulations under
sec. 471 for a definition of a dealer in securities. The latter
regulations, like Kemon v. Commissioner, 16 T.C. 1026 (1951), use
a merchant analogy and require an "established place of
business." See sec. 1.471-5, Income Tax Regs. To the extent
this regulatory definition bears on this case, we believe
petitioner cannot meet it.
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