CME IOM Membership tax implications for an Individual Member

Discussion in 'Professional Trading' started by rwurly, Jan 5, 2017.

  1. sprstpd

    sprstpd

    I don't think this is correct. You can have trader tax status and still produce unearned income unless you set up some sort of business entity.
     
    #11     Jan 6, 2017
  2. algofy

    algofy

    @tiddlywinks

    This is at least the second thread I've seen you give grossly inaccurate tax advice. Can you please stop it and just don't talk about tax matters.
     
    #12     Jan 7, 2017
  3. chris500

    chris500

    I just contacted the CME, specifically asking if buying a seat automatically makes me a dealer in the eyes of the IRS and therefore subject to the self-employment tax.

    The answer is no. But you have to trade only your personal account. You cannot have clients/customers.

    If you trade your personal account and have customers/clients, then that makes you a dealer. At which point you also have to register as a dealer (with the CFTC, I think).

    Here is the exact quote from the CME:

    "Purchasing a NYMEX seat does not make you a “dealer”.
    The business that you conduct determines this factor i.e. if you are doing customer business."
     
    Last edited: Nov 14, 2017
    #13     Nov 14, 2017
  4. Sig

    Sig

    I would be pretty shocked in anyone at the CME would give you tax advice. There may be a difference between their definition of the word "dealer" and the IRS definition of the word "dealer".
     
    #14     Nov 14, 2017
  5. chris500

    chris500

    It's not tax advice. The CME/futures exchanges and the CFTC determine what a dealer is. They're in charge of registering them. The IRS goes by what they say. There is no special IRS definition of dealer.

    1402(i)(2)(B)
    "The term “commodities dealer” means a person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission."

    The key word is "registered". Registered as a dealer. Dealers have to register. Seat owners do not have to register.

    It's funny that you're doubting what the CME says. I contacted the people directly involved in buying/selling/approving memberships. Not some random intern.
     
    Last edited: Nov 14, 2017
    #15     Nov 14, 2017
  6. Sig

    Sig

    So you specifically asked them if "if buying a seat automatically makes me a dealer in the eyes of the IRS"? And they said yes?

    Or did you ask them if it made you a dealer, absent the "in the eyes of the IRS" part and they said yes, and now you're making the connection that it would be a dealer "in the eyes of the IRS"? Because that's a very different thing. You may be right, but as I said it would be pretty shocking if anyone from the CME specifically addressed what you would or would not be in the eyes of the IRS.
     
    #16     Nov 14, 2017
  7. chris500

    chris500

    A dealer in the eyes of the IRS is defined in the IRS law (1402(i)(2)(B)) I quoted in my previous post.

    And it clearly says it defers to an outside entity (not the IRS) to determine if you're a dealer or not.

    I asked that outside entity (CME) and they said no. Buying a seat does not automatically make you a dealer. It's what you do with it.

    Here is exactly what I asked them and what they said:

    Me: "Does buying a NYMEX seat make me a "dealer" in the eyes of IRS and therefore subject to the self-employment tax?"

    CME: "Purchasing a NYMEX seat does not make you a “dealer”.
    The business that you conduct determines this factor i.e. if you are doing customer business."
     
    #17     Nov 14, 2017
  8. algofy

    algofy

    If you own a seat you have to pay SE tax, full stop.
     
    #18     Nov 14, 2017
    garachen likes this.
  9. Sig

    Sig

    Interesting, still pretty surprised they'd specifically address an IRS tax situation, but I'll take you at your word.
     
    #19     Nov 14, 2017
  10. algofy

    algofy

    Impossible they gave tax advice, but whatever, I've seen this question asked so many times before and I'm fairly convinced it's just pikers dreaming 99% of the time, maybe 100% of the time.
     
    #20     Nov 14, 2017
    comagnum likes this.