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Investors, traders and Section 475

The IRS is reportedly paying closer attention to investors who do not comply with Section 475 rules. Section 475 governs investment positions and contains clauses regarding limitations on unrealized losses.

While investors do not want to miss out on any opportunity to lower long-term capital gain raters on their tax returns, misidentified investment positions pertaining to Section 475 often result in excessive tax penalties and interest. A misidentified investment also provides the IRS power under Section 475 to subject them to ordinary income tax rates.

It is therefore extremely important to carefully identify all investment positions. This means taking extra measures to identify each investment position after receiving confirmation of a purchase. It also involves steps in segregating investment accounts from trading accounts.

Even such compliance may not always be sufficient, however, to avoid IRS scrutiny. Investors and traders often have a variety of accounts that will raise allegations about improper segregation of investments. Further steps may also be required to avoid consequences under Section 475 – while at the same time taking advantage of tax breaks allowable under this section.
These are just some of the reasons why it is important to have an attorney available who can assist with tax compliance and planning. These attorneys help you locate applicable credits and deductions while preparing tax returns.  They can also make certain all returns are in compliance with complex and not always easily understandable tax regulations (such as Section 475). And when misunderstandings with the IRS arise, these attorneys can also provide representation in the event of an audit.

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