                            T.C. Memo. 2005-167



                          UNITED STATES TAX COURT



               RONALD A. AND CAROL J. LEHRER, Petitioners v.
                COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 2381-04.             Filed July 11, 2005.


        John Gigounas, for petitioners.

        Margaret A. Martin, for respondent.



                            MEMORANDUM OPINION


        HAINES, Judge:    This case is before the Court on

respondent’s motion for partial summary judgment pursuant to Rule

121.1       The issue for our consideration is whether petitioners



        1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
                                - 2 -

made an effective election under section 475(f) on the amendment

to petition.

                            Background

     At the time of the filing of the petition, petitioners

resided in Byron, California.

     Petitioners filed Forms 1040, U.S. Individual Income Tax

Return, for 1998, 1999, 2000, and 2001.    Before the filing of the

amendment to petition, petitioners did not make an election under

section 475(f) (mark-to-market election) which would make the

election applicable to taxable years 1999, 2000, and 2001 (years

in issue).   On their 1999 tax return, petitioners reported

$44,004 of capital gain income.    On their 2000 tax return,

petitioners reported on the Schedule D, Capital Gains and Losses,

a net short-term capital loss of $313,715 and subtracted from

income $3,000 as a capital loss.    On their 2001 tax return,

petitioners reported a net short-term capital loss of $397,079 on

the Schedule D and subtracted from income $3,000 as a capital

loss.

     On November 26, 2003, respondent issued to petitioners a

notice of deficiency which determined that petitioners owed a

deficiency of $650,411 and a penalty pursuant to section 6662(a)

of $130,082 for 1999.   On the same date, respondent also issued

to petitioners a notice of deficiency which determined that

petitioners owed a deficiency of $1,013,341 and a penalty
                                 - 3 -

pursuant to section 6662(a) of $202,668 for 2000, and a

deficiency of $1,240,280 and a penalty pursuant to section

6662(a) of $247,936 for 2001.

     On February 10, 2004, petitioners timely filed a petition

with the Court disputing the notices of deficiency for the years

in issue.   On November 10, 2004, petitioners filed a motion for

leave to amend petition and proposed amendment pursuant to Rule

41(a).   Petitioners requested leave to file an amendment to

petition and stated:


          3. The issue raised    by the proposed amendment was
     recently discovered after   numerous conferences with Appeals
     and review of Petitioners   [sic] records for 2000 and 2001.
     The audit for these years   was just completed.

          4. The question raised in the proposed argument [sic]
     is whether Petitioner, Ron Lehrer, was a trader in
     securities and, if so, whether the provision of §475(f)
     apply [sic] so as to allow ordinary losses as well as
     ordinary gains in the years in question.

          5. The Amendment of this Petition was recently
     discussed with Respondent’s counsel and the Appeals officer.

          6. All documents relating to the issue raised in the
     proposed amendment have been furnished to Respondent. The
     applicability of §475(f) is basically a legal issue.

          7. Although it is in the discretion of the Court to
     permit amendment of the Petition, the Court should permit
     the Petitioners to amend their Petition to raise the issue
     because all issues raised in the Notices, except the
     negligence penalty, have been settled. The new issue was
     recently discovered and, all documents relating to this
     issue have been furnished to Respondent.
                               - 4 -

     On November 22, 2004, we granted petitioners’ motion for

leave to amend petition and filed the amendment to petition which

pleaded, in full, the following:

          Petitioners pursuant to leave of this Court,
     hereby amend their Petition heretofore filed in this
     action as follows:

          6(a)    Petitioner, Ron Lehrer, was a securities
                  trader and is entitled to elect the
                  provisions of §475(f) in order to claim all
                  his gains and losses as ordinary rather
                  than capital.

          6(b)    The election under §475(f) does not have to
                  be made on a timely filed return.

          WHEREFORE, Petitioners pray that the Court hear
     this case and determine that there are deficiencies due
     for the years in issue resulting from the agreed
     adjustments pursuant to a partial settlement agreement
     to be filed in this action and, that the Court
     determine that there are no penalties due for the years
     at issue, and that Petitioner, Ron Lehrer, was a trader
     in securities and that the provisions of §475(f) apply
     so that all security gains and losses are treated as
     ordinary.

     On December 2, 2004, the Court granted petitioners leave to

file a second amendment to petition regarding the section 6662(a)

penalty, an issue not relevant to the instant motion.   On

December 10, 2004, respondent filed answers to both amendments to

petition, specifically denying the allegations contained in

paragraph 6.

     On December 20, 2004, the parties filed a stipulation of

settled issues.   The parties stipulated that the only remaining
                               - 5 -

issues are whether petitioners are liable for the section 6662(a)

penalties imposed and the applicability of section 475(f).

     On January 19, 2005, respondent filed a motion for partial

summary judgment.   Respondent moves for partial summary

adjudication in respondent’s favor upon the issue of whether

petitioner Ronald A. Lehrer’s (Mr. Lehrer’s) gains or losses with

respect to securities should be treated as ordinary gains or

losses pursuant to section 475(f).     Respondent attached to the

motion petitioners’ tax returns for 1998, 1999, 2000, and 2001.

     On January 21, 2005, the Court ordered petitioners to file a

written response to respondent’s motion on or before February 18,

2005.   On February 15, 2005, the Court filed petitioners’

response objecting to respondent’s motion for partial summary

judgment.

                            Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.     Fla. Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).     Rule 121(a) provides that

either party may move for summary judgment upon all or any part

of the legal issues in controversy.     The Court may grant full or

partial summary judgment when there is no genuine issue of

material fact and a decision may be rendered as a matter of law.

Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.
                                - 6 -

Commissioner, 90 T.C. 753, 754 (1988).    We conclude that there is

no genuine issue of material fact regarding the question raised

in respondent’s motion for partial summary judgment, and a

decision of that question may be rendered as a matter of law.

     Respondent argues that even if Mr. Lehrer was a “trader in

securities” during the years in issue, he failed to make an

effective mark-to-market election pursuant to Rev. Proc. 99-17,

1999-1 C.B. 503.   Petitioners concede that they did not make a

mark-to-market election on their tax returns but argue that an

effective mark-to-market election was made on their first

amendment to petition to this Court.    Further, petitioners argue

that Rev. Proc. 99-17, supra, lacks “precedential value as it

simply announces the Service’s position.”

     A taxpayer engaged in a trade or business as a trader in

securities is eligible to elect to recognize gain or loss on any

security held in connection with his trade or business at the

close of the taxable year as if the security were sold for its

fair market value at yearend.   Sec. 475(f)(1)(A)(i);2 see Chen v.


     2
          SEC. 475(f). Election of Mark to Market for Traders in
     Securities or Commodities.--

          (1) Traders in securities.--

               (A) In general.--In the case of a person who is
          engaged in a trade or business as a trader in
          securities and who elects to have this paragraph apply
          to such trade or business--

                                                     (continued...)
                               - 7 -

Commissioner, T.C. Memo. 2004-132.     In general, any gains or

losses resulting from the mark-to-market election shall be

treated as ordinary income or loss.    Sec. 475(d)(3)(A),

(f)(1)(D).   If a taxpayer is in the business as a trader in

securities and made a mark-to-market election with respect to

sales of securities held in connection with his business, his net

loss from that business would be an ordinary loss, deductible in

full under section 165; if the mark-to-market election is not

made, the net loss would be a capital loss deductible only to the

extent of any capital gains plus $3,000.    See secs. 165(a), (c),

(f), 1211(b)(1); Chen v. Commissioner, supra.

     In Chen we held that the taxpayer was not a “trader in

securities” for the relevant year for purposes of section 475(f)

and, therefore, did not address the taxpayer’s argument regarding

whether he should be permitted to make an untimely, retroactive

mark-to-market election because section 475(f) was not available

to him.   As a result, we are presented with a novel issue:

whether an allegation contained in an amendment to petition

qualifies as an effective mark-to-market election.




     2
      (...continued)
                     (i) such person shall recognize gain or loss
                on any security held in connection with such trade
                or business at the close of any taxable year as if
                such security were sold for its fair market value
                on the last business day of such taxable year, * *
                *
                               - 8 -

     With regard to making the mark-to-market election, section

475(f)(3) provides:

          (3) Election.--The elections under paragraphs (1)
     and (2) may be made separately for each trade or
     business and without the consent of the Secretary.
     Such an election, once made, shall apply to the taxable
     year for which made and all subsequent taxable years
     unless revoked with the consent of the Secretary.

     The statute and regulations do not provide procedures that

specify the time and manner to make a mark-to-market election.3

     We look to the legislative history of section 475 to

determine congressional intent because the statute is silent as

to the procedures which must be followed to make a mark-to-market

election.   Ewing v. Commissioner, 118 T.C. 494, 503 (2002)

(citing Burlington N.R.R. Co. v. Okla. Tax Commn., 481 U.S. 454,

461 (1987)); see Wells Fargo & Co. v. Commissioner, 120 T.C. 69,

89 (2003); Allen v. Commissioner, 118 T.C. 1, 7 (2002).     The

legislative history states that “The election will be made in the

time and manner prescribed by the Secretary of the Treasury and

will be effective for the taxable year for which it is made and

all subsequent taxable years, unless revoked with the consent of

the Secretary.”   See H. Conf. Rept. 105-148, at 446 (1997), 1997-

4 C.B. (Vol. 1) 323, 768.   Thus, the Secretary has authority to

prescribe the time and manner of the election.



     3
       The Commissioner issued proposed regulations on Jan. 28,
1999. Sec. 1.475(f)-1, Proposed Income Tax Regs., 64 Fed. Reg.
4378 (Jan. 28, 1999).
                              - 9 -

     Under this authority, the Commissioner issued Rev. Proc. 99-

17, 1999-1 C.B. 503, which provides the procedure for taxpayers

to make a mark-to-market election.    Generally, Rev. Proc. 99-17,

sec. 5, 1999-1 C.B. at 504-505, provides that the taxpayer must

file a statement which describes the election being made, the

first taxable year for which the election is effective, and the

trade or business for which the election is made.   This statement

must be filed not later than the due date of the Federal income

tax return (without regard to extensions) for the taxable year

immediately preceding the election year and must be attached to

that tax return or to a request for an extension of time to file

that return.   Id.

     The fact that petitioners did not file any statements with

their tax returns for the years immediately preceding the years

in issue (i.e., 1998, 1999, and 2000) would indicate that a mark-

to-market election was not made.   Therefore, we conclude that

petitioners did not make a mark-to-market election in compliance

with Rev. Proc. 99-17, supra, to affect the years in issue.4

     The salient fact is that petitioners attempted to file a

mark-to-market election by amending their petition long after the


     4
        Rev. Proc. 99-17, 1999-1 C.B. 503, also requires that the
taxpayer obtain the consent of the Commissioner to change his
method of accounting to mark-to-market accounting. Id., sec. 5,
1999-1 C.B. at 504-505. We make no decision on the applicability
of this requirement because the issue in the instant case is
resolved by petitioners’ failure to meet the due date of the
mark-to-market election.
                              - 10 -

due dates of their tax returns for the years in issue.    In the

meanwhile, respondent had audited those returns without

disturbing petitioners’ characterization of the gains and losses

from securities transactions as capital and had determined

deficiencies in petitioners’ income taxes, prompting the petition

to this Court.   Even assuming arguendo that we did not look to

the revenue procedure for guidance, we would still conclude that

the mark-to-market election on the amendment to petition was made

so late that petitioners are not entitled to abandon the valid

method for reporting capital gains and losses on their tax

returns.   Cf. Pac. Natl. Co. v. Welch, 304 U.S. 191, 194-195

(1938) (change from method used on return for reporting gain on

sale to installment method “would require recomputation and

readjustment of tax liability for subsequent years and impose

burdensome uncertainties upon the administration of the revenue

laws”); Wierschem v. Commissioner, 82 T.C. 718, 722-724 (1984).

     Therefore, we conclude that there is no genuine issue of

material fact that petitioners did not make an effective mark-to-

market election on the amendment to petition to avail themselves

of the benefits of section 475(f).     As a result, respondent’s

motion for partial summary judgment will be granted.
                        - 11 -

To reflect the foregoing,


                                 An order will be issued

                            granting respondent’s motion for

                            partial summary judgment.
