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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 represents remuneration for
their labors as a middleman bringing together buyer and
seller, and performing the usual services of retailer
or wholesaler of goods.
Kemon v. Commissioner, 16 T.C. 1026, 1032-33 (1951).
Dealers have customers for purposes of section 1221.
See United States v. Diamond, 788 F.2d 1025, 1029 (4th
Cir. 1986).
Traders, on the other hand, are sellers of
securities or commodities who "depend upon such
circumstances as a rise in value or an advantageous
purchase to enable them to sell at a price in excess of
cost." Id. at 1033. A trader performs no
merchandising functions nor any other service which
warrants compensation by a price mark-up of the
securities he or she sells. Id. at 1032-33. "[A]
trader will be deemed to be engaged in a trade or
business if his or her trading is frequent and
substantial. King, 89 T.C. at 458. Generally, both
dealers and traders will be engaged in a trade or
business; only a dealer, however, has customers.
An investor is very similar to a trader. Like a
trader, an investor "makes purchases for capital
appreciation and income." King, 89 T.C. at 459.
Unlike a trader, however, an investor makes such
purchases "usually without regard to short-term
developments that would influence prices on the daily
market." Id. An investor, on the other hand, will
never be considered to be engaged in a trade or
business with respect to his or her investment
activities, no matter how extensive his or her
activities might be. Id. at 459. [Id.]
See also sec. 1.471-5, Income Tax Regs. (regulatory definition of
a dealer in securities).
Petitioner was not a dealer. First, he did not conduct his
trading activity in the manner in which a dealer would have. He
personally owned all of the Treasury securities that he traded,
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