Practitioners from time to time will encounter traders in securities in their practice. Such traders hold investments for a very short period of time, often no more than minutes, looking to make money from short term movements in the price of the securities in question.

Unfortunately, doing this successfully is far from simple, and quite a few new traders find their new business is the perfect vehicle to turn a large fortune into a small one—or none. The sale of securities normally is considered a sale of a capital asset—so if they are unsuccessful, they quickly have losses far in excess of the $3,000 per year limit on an individual claiming capital losses in excess of capital gains.

If a taxpayer is a trader and properly elects under IRC §475(f) to use the mark to market treatment, the gains and losses from the trading activity are treated as ordinary, rather than capital, gains and losses.  Of particular significance is that losses in excess of gains will not be subject to a $3,000 annual limitation.

In the case of Poppe v. Commissioner, TC Memo 2015-205 the question at hand was whether, in fact, Mr. Poppe had ever properly made the election in question.