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day of the taxable year. Any gain or loss must be taken into
account in that year. Sec. 475(f)(1)(A)(i).
If a qualified taxpayer makes a section 475(f) election, the
gain or loss on the sale or disposition of a security is treated
as ordinary income or loss. Sec. 475(d)(3)(A)(i), (f)(1)(D).
Accordingly, if petitioner is entitled to make the election, he
would be able to apply and carry back his losses from his
securities trading business to offset the ordinary income he
received as compensation for settling the class action lawsuit.
On the other hand, if a taxpayer fails to make the section 475(f)
election, gain or loss from the sale or disposition of a security
is treated as capital gain or loss. See secs. 1221(a) and 1222.
Capital losses for individuals are subject to the capital loss
limitations under section 1211(b), which provides that capital
losses are allowed only to the extent of capital gains, plus
$3,000. Petitioner has $35,486,830 in ordinary income from his
law practice and $26,768,761 in short-term capital losses from
his securities trading business.
The parties have stipulated that petitioner was engaged in a
trade or business as a securities trader by January 28, 2000.
Accordingly, the parties do not dispute whether petitioner is
qualified to make a section 475(f) election; their primary
dispute is whether petitioner should be allowed the benefit of
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