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.
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CME IOM Membership tax implications for an Individual Member
- Thread starter rwurly
- Start date
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.
@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.
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.
If you own the CME IOM Membership as an Individual Member (I am an individual/sole proprietor who only trades my own account from my home). Do I have to pay self employment taxes (FICA)? Do I pay taxes on capital gains as ordinary income? If so, why would anyone ever want to buy a membership?
Thanks,
Rick
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."
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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".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."
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".
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.
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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?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.
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.
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.
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."
Interesting, still pretty surprised they'd specifically address an IRS tax situation, but I'll take you at your word.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."
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.Interesting, still pretty surprised they'd specifically address an IRS tax situation, but I'll take you at your word.