Abandoning entity - IRS reaction

Discussion in 'Professional Trading' started by TraderD, May 6, 2004.

  1. TraderD


    Suppose person decides to abandon entity. It seems like futures traders after a certain point might be better of filing as individuals.

    Can IRS come after trader saying: "Look, your activity is/was conducted as a business, thus *is* a business - you must trade through entity"?
  2. Closing an entity is not all that difficult, but yes, if you fail to take the proper steps to end the entity's trading/business activity the IRS could certainly take the position that you stated above.

    But more to the point, trading futures, per se, is not "better" when filing as an individual taxpayer, rather than through an entity. Traders generally use pass-thru entities and as such the tax attributes of trading futures passes to the owner(s).

    If you are finding this is not the case, you may have elected M2M within the entity and are confused on how to terminate it (simply form a new entity, is one easy solution); or you may be trading within a c-corporation (generally a bad idea); or your tax work is messed up in some way...
  3. TraderD


    Thanks! I am just considering getting an entity, thinking ahead.
  4. gms


    I've been told that if you walk away from an entity, and that the entity is not conducting any business, no profit, that though you should technically dissolve the company, no one's really going to come after you, it not being worth any effort if there really hasn't been any activity and no taxes due. You'd be declaring your earnings and paying your taxes in the meantime as an individual. No harm, no foul.
  5. TraderD


    Agree, I had in mind a profitable entity. IRS has not interest at going after unprofitable activity. But your point brings up another option - one could just intentionally stop trading in entity for a period of time or show a monir loss.
  6. nkhoi


    no wonder I see new rug store and 'going out of business' rug store all the time.
  7. Andre


    no wonder I see new rug store and 'going out of business' rug store all the time.

    That probably doesn't have anything to do with the IRS. Stores popping up and then going out of business is more likely due consumer protection laws. It's is illegal to have more than one going out of business sale for one business name. In most places. I think you even have to register to have GOB.

    Minor factoid. But I found it interesting when a pal of mine was talking about closing his long time Mom and Pop retail shoe store. GOBs can be big business, especially if you do them right, like gearing up and stocking up for them. He was thinking he could net 200K if he did it right.

  8. Do LLC members get Section 1256 treatment on futures?
  9. Yes, if that's how you set it up, they do...