MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: Petitioner petitioned the Court to redetermine deficiencies in Federal income tax of $ 2,071 for 2002 and $ 1,545 for 2003. We decide whether petitioner's activities involving the purchase and sale of stocks, options, and futures contracts constituted a trade or business. We hold they did not.
FINDINGS OF FACT
Some facts have been stipulated and are so found. The stipulated facts and the exhibits submitted therewith are incorporated herein by this reference. Petitioner resided in Colorado Springs, Colorado, when his petition was filed.
Petitioner holds a bachelor's degree in accounting and began investing in the stock market in 2001. In 2002, he developed software as an employee of Analysts International and was paid wages of $ 28,543. In January 2002, he suffered severe injuries from a car accident which left him unable to work for 4 months. In August 2002, he received a settlement of $ 71,553 (after the payment of legal fees and other expenses) as to the accident. Afterwards, he ceased his employment and began trading in the market to a greater extent. 2007 Tax Ct. Memo LEXIS 265">*266 He purchased software and opened brokerage accounts to enable him execute trades quickly.
Petitioner's 2002 trading activity was conducted through Datek, a brokerage subsequently acquired by Ameritrade. In 2002, petitioner made 46 purchases totaling $ 26,108 and 14 sales totaling $ 17,004. At the close of 2002, his brokerage account was worth $ 11,774. On a Schedule D, Capital Gains and Losses, attached to his 2002 Federal income tax return, petitioner reported that he had realized a $ 2,127 capital gain from 11 sales. As reported, six transactions had a holding period of less than 61 days, and three of the transactions had a holding period of less than 31 days. The holding periods of the remaining 2 of the 11 transactions were not available. The proceeds received on each of the transactions ranged from a high of $ 5,739 to a low of $ 529.
Petitioner also included with his 2002 tax return a Schedule C, Profit or Loss from Business, reporting that he had a sole proprietorship named "Cameron Enterprises", the principal business of which was "Cameron Trading". The 2002 Schedule C reported that the business had received gross income of ($ 18), after taking into account $ 59 for cost of goods 2007 Tax Ct. Memo LEXIS 265">*267 sold reported as a withdrawal for petitioner's personal use. 1 The Schedule C reported that the business paid $ 200 for "office expenses", $ 28 for "supplies", and $ 12,211 for "continuing education". Petitioner's 2002 tax return reported that petitioner was entitled to deduct the $ 12,457 business loss (negative $ 18 of gross income less the sum of $ 200, $ 28, and $ 12,211) to arrive at his gross income.
In 2003, all of petitioner's trading activity was conducted through Datek/Ameritrade, OptionsXpress, and Trade Station Securities, Inc. In 2003, petitioner made 109 purchases totaling $ 79,409 and 103 sales totaling $ 89,204. His brokerage account at the end of 2003 was worth $ 10,287, and his futures account was worth $ 2,541. On his 2003 Schedule D, he reported 65 sales totaling $ 88,799. He also reported on Form 6781, Gains and Losses from
During the years at issue, petitioner did not conduct trades 5 days a week. Of the years at issue, there were only 2 months in which petitioner conducted trading activity on more than 10 days. On the days he was not conducting trades, petitioner was maintaining a cash position.
Petitioner's continuing education expenses for 2002 and 2003 were attributable to his attending seminars related to his trading activities. These expenses consisted of amounts spent on supplies, books, journals, computer software, online services, classes, seminars, 2007 Tax Ct. Memo LEXIS 265">*269 travel, and meals.
Respondent determined in the notice of deficiency that the $ 200 and $ 28 expenses deducted for 2002 were deductible under
OPINION
Petitioner argues that he was in the trade or business of trading securities and entitled to deduct expenses related to his trading activities as "above the line" deductions pursuant to
The Internal Revenue Code does not define the term "trade or business".
In determining whether a taxpayer's trading activities 2007 Tax Ct. Memo LEXIS 265">*271 constituted a trade or business, courts have distinguished between "traders" and "investors".
In determining whether a taxpayer who manages his own investments is a trader, nonexclusive factors to consider are: (1) The taxpayer's investment intent, (2) the nature of the income to be derived from the activity, and (3) the frequency, extent, and regularity of the taxpayer's securities transactions.
As to the first requirement, we find petitioner's trading activity was not substantial. Courts consider the number of executed trades in a year and the amount of money involved in those trades when evaluating whether a taxpayer's trading activities were substantial. See, e.g.,
In 2002, petitioner's trading activity consisted of 46 purchases and 14 sales. In 2003, he completed 109 purchases and 103 sales. During the years at issue, petitioner did not trade 5 days a week. 2007 Tax Ct. Memo LEXIS 265">*274 Of the years at issue, he traded on more than 10 days in a given month only twice. We also note that petitioner's collecting unemployment compensation during 2003 further undermines his argument that he was engaged in a trade or business during that year. We conclude that petitioner was not engaged in a trade or business of trading securities during the years at issue and thus that his expenses related to his trading activities are not deductible under
We have considered all petitioner's arguments for holdings contrary to those expressed herein and reject the arguments not discussed herein as irrelevant or without merit.
Decision will be entered for respondent.
1. With the exception of this $ 59 withdrawal, the Schedule C reports no item for cost of goods sold.↩
2. Unless otherwise indicated, section references are to the Internal Revenue Code, and Rule references are to the Tax Court Rules of Practice and Procedure.↩
3. Under
4. In contrast to trade or business expenses, a taxpayer's investment-related expenses that are deductible under