L.S. Vines - Page 3

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          on line 29 of Schedule C, Profit or Loss From Business, of his              
          Forms 1040, U.S. Individual Income Tax Return, for taxable years            
          1999 and 2000, respectively.                                                
               During the fall of 1999, petitioner decided to begin a new             
          career as a securities trader.  Petitioner established brokerage            
          accounts with DLJdirect and Ameritrade, deposited $5 million in             
          each of those accounts, and became engaged in the trade or                  
          business of trading securities on January 28, 2000.1                        
               Petitioner used margin borrowing as part of his securities             
          trading strategy.  On April 14, 2000, DLJdirect forced the                  
          liquidation of petitioner’s entire account because petitioner               
          failed to cover a margin call after technology stocks declined              
          sharply during early April 2000.  As of April 14, 2000,                     
          petitioner’s net trading losses totaled $25,196,151.54.                     
               Petitioner relied on certified public accountants to advise            
          him on Federal tax matters and to prepare his Federal tax                   
          returns.  J. Wray Pearce (Mr. Pearce), a certified public                   
          accountant with over 30 years of experience, had served as                  
          petitioner’s business and personal accountant for more than 13              
          years and was very familiar with petitioner’s securities trading            
          business.                                                                   




               1The parties stipulated this fact based on the volume and              
          frequency of petitioner’s trading.                                          




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