- 34 -
own account in 1977. With one exception, he sold the GNMA's back
to the same primary dealer from whom he had purchased them. In
1980, he stopped trading GNMA's and began trading Treasury
securities through accounts which he maintained with primary
dealers. We rejected his argument that he was a dealer and that
the primary dealers were his "customers". We stated:
The fact that petitioner did not trade on an organized
exchange, but rather dealt directly with the primary
traders, is of no consequence due to the fact that
there existed no GNMA exchange. * * * Petitioner was
a trader, not a dealer, and the primary dealers with
whom petitioner traded were not his "customers,"
rather, he was theirs.
Petitioners would have us look to a myriad of
other factors in defining a trader and a dealer.
However, we point out that, unlike a dealer, a trader
has no 'customers' and trades only on his own account.
However, the trading activity in which traders engage
may resemble the activity of a dealer in every other
respect. It is possible that the trading activity of a
trader may rise to the level of a trade or business of
selling securities, but, nevertheless, such sales still
produce capital gains and losses. King v.
Commissioner, supra, at 457. The distinguishing
characteristic between a trader and a dealer is the
presence of "customers." [Id.]
Petitioner argues that Frankel v. Commissioner, supra, is
distinguishable because petitioner's trading activity was more
extensive than that of the taxpayer in Frankel. We disagree that
this fact is a meaningful distinction. As in Frankel, the
primary dealers with whom petitioner traded Treasury securities
through his personal account were not his "customers", and,
consistent with Frankel, the absence of "customers" properly
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