                        T.C. Memo. 2007-260



                     UNITED STATES TAX COURT



                  STANLEY C. CAMERON, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 21726-05.             Filed August 30, 2007.



     Stanley C. Cameron, pro se.

     M. Jeanne Peterson, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioner petitioned the Court to redetermine

deficiencies in Federal income tax of $2,071 for 2002 and $1,545

for 2003.   We decide whether petitioner’s activities involving

the purchase and sale of stocks, options, and futures contracts

constituted a trade or business.   We hold they did not.
                                - 2 -

                          FINDINGS OF FACT

     Some facts have been stipulated and are so found.    The

stipulated facts and the exhibits submitted therewith are

incorporated herein by this reference.    Petitioner resided in

Colorado Springs, Colorado, when his petition was filed.

     Petitioner holds a bachelor’s degree in accounting and began

investing in the stock market in 2001.    In 2002, he developed

software as an employee of Analysts International and was paid

wages of $28,543.    In January 2002, he suffered severe injuries

from a car accident which left him unable to work for 4 months.

In August 2002, he received a settlement of $71,553 (after the

payment of legal fees and other expenses) as to the accident.

Afterwards, he ceased his employment and began trading in the

market to a greater extent.    He purchased software and opened

brokerage accounts to enable him execute trades quickly.

     Petitioner’s 2002 trading activity was conducted through

Datek, a brokerage subsequently acquired by Ameritrade.    In 2002,

petitioner made 46 purchases totaling $26,108 and 14 sales

totaling $17,004.    At the close of 2002, his brokerage account

was worth $11,774.    On a Schedule D, Capital Gains and Losses,

attached to his 2002 Federal income tax return, petitioner

reported that he had realized a $2,127 capital gain from 11

sales.   As reported, six transactions had a holding period of

less than 61 days, and three of the transactions had a holding
                                - 3 -

period of less than 31 days.   The holding periods of the

remaining 2 of the 11 transactions were not available.    The

proceeds received on each of the transactions ranged from a high

of $5,739 to a low of $529.

     Petitioner also included with his 2002 tax return a Schedule

C, Profit or Loss from Business, reporting that he had a sole

proprietorship named “Cameron Enterprises”, the principal

business of which was “Cameron Trading”.   The 2002 Schedule C

reported that the business had received gross income of ($18),

after taking into account $59 for cost of goods sold reported as

a withdrawal for petitioner’s personal use.1   The Schedule C

reported that the business paid $200 for “office expenses”, $28

for “supplies”, and $12,211 for “continuing education”.

Petitioner’s 2002 tax return reported that petitioner was

entitled to deduct the $12,457 business loss (negative $18 of

gross income less the sum of $200, $28, and $12,211) to arrive at

his gross income.

     In 2003, all of petitioner’s trading activity was conducted

through Datek/Ameritrade, OptionsXpress, and Trade Station

Securities, Inc.    In 2003, petitioner made 109 purchases totaling

$79,409 and 103 sales totaling $89,204.    His brokerage account at

the end of 2003 was worth $10,287, and his futures account was



     1
       With the exception of this $59 withdrawal, the Schedule C
reports no item for cost of goods sold.
                                - 4 -

worth $2,541.    On his 2003 Schedule D, he reported 65 sales

totaling $88,799.    He also reported on Form 6781, Gains and

Losses from Section 1256 Contracts and Straddles, losses from

futures transactions as a loss from section 12562 contracts

marked to market.    Petitioner held 30 futures contracts for 1 to

30 days.    He held 21 futures contracts for 31 to 60 days.     He

held seven futures contracts for 60 to 90 days.    He held seven

futures contracts for 91 to 180 days.    Petitioner’s 2003 Schedule

C for Cameron Enterprises reported that its “principal business

or profession” was “SERVICE MARKET TRADI”.    The Schedule C

reported no income from the business and expenses totaling

$8,797.    The expenses consisted of $959 for travel, $6,043 for

continuing education, and $1,795 for “ongoing services”.      Also in

2003, petitioner reported receiving unemployment compensation of

$11,971.

     During the years at issue, petitioner did not conduct trades

5 days a week.    Of the years at issue, there were only 2 months

in which petitioner conducted trading activity on more than 10

days.    On the days he was not conducting trades, petitioner was

maintaining a cash position.

     Petitioner’s continuing education expenses for 2002 and 2003

were attributable to his attending seminars related to his


     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code, and Rule references are to the Tax Court
Rules of Practice and Procedure.
                               - 5 -

trading activities.   These expenses consisted of amounts spent on

supplies, books, journals, computer software, online services,

classes, seminars, travel, and meals.

     Respondent determined in the notice of deficiency that the

$200 and $28 expenses deducted for 2002 were deductible under

section 212.   Respondent also determined that petitioner was not

entitled to deduct any of the remaining expenses claimed on his

2002 and 2003 Schedules C.   As to all of the expenses, the notice

states that petitioner had not established that they were

“ordinary and necessary business expenses” or were “expended for

the purpose designated”.   The notice also states as to the

claimed expenses for continuing education and ongoing services

that petitioner did not establish that any of those expenses were

incurred for the production of income or, to the extent of the

expenses claimed for education, that they “were incurred

primarily to maintain or improve skills required in your present

employment, trade, or business, or to meet the express

requirements of your employer”.

                              OPINION

     Petitioner argues that he was in the trade or business of

trading securities and entitled to deduct expenses related to his

trading activities as “above the line” deductions pursuant to

section 162(a).   Respondent argues that petitioner did not trade

his securities in a trade or business and, to the extent that his
                               - 6 -

expenses are deductible, they are deductible as “below the line”

deductions pursuant to section 212.     We agree with respondent.

     The Internal Revenue Code does not define the term “trade or

business”.   Commissioner v. Groetzinger, 480 U.S. 23, 27 (1987);

Estate of Yaeger v. Commissioner, 889 F.2d 29, 33 (2d Cir. 1989),

affg. 92 T.C. 180 (1989).   Whether petitioner’s activities

constituted a trade or business is a question of fact.     See

Higgins v. Commissioner, 312 U.S. 212, 217 (1941); Estate of

Yaeger v. Commissioner, supra at 33; Mayer v. Commissioner, T.C.

Memo. 1994-209; Paoli v. Commissioner, T.C. Memo. 1991-351.

Petitioner has the burden of proof.     See Rule 142(a)(1); Welch v.

Helvering, 290 U.S. 111, 115 (1933).3

     In determining whether a taxpayer’s trading activities

constituted a trade or business, courts have distinguished

between “traders” and “investors”.     Moller v. United States, 721

F.2d 810, 813 (Fed. Cir. 1983); see also Levin v. United States,

220 Ct. Cl. 197, 597 F.2d 760, 765 (1979).     Management of

securities investments, regardless of the extent and scope of

such activity, is seen as the work of a mere investor, “not the

trade or business of a trader.”   Estate of Yaeger v.


     3
       Under sec. 7491(a)(1), the burden of proof may shift to
the Commissioner if the taxpayer introduces credible evidence
with respect to any factual issue relevant to ascertaining the
taxpayer’s proper tax liability and meets certain requirements
under sec. 7491(a)(2). Petitioner did not raise an issue as to
the application of sec. 7491, and we find that section is
inapplicable to this case.
                                 - 7 -

Commissioner, supra at 34; see also Whipple v. Commissioner, 373

U.S. 193, 202 (1963); Higgins v. Commissioner, supra at 217;

Paoli v. Commissioner, supra; Beals v. Commissioner, T.C. Memo.

1987-171.   This result is the same notwithstanding the amount of

time the individual devotes to the activity.     Mayer v.

Commissioner, supra.   Even “full-time market activity in managing

and preserving one’s own estate is not embraced within the phrase

‘carrying on a business,’ and * * * salaries and other expenses

incident to the operation are not deductible as having been paid

or incurred in a trade or business.”     Commissioner v.

Groetzinger, supra at 30.     Instead, an investor’s expenses may be

deductible under section 212 to the extent that expenses were

incurred in the production of income.4    Sec. 212; Whipple v.

Commissioner, supra at 200; United States v. Gilmore, 372 U.S.

39, 45 (1963).

     In determining whether a taxpayer who manages his own

investments is a trader, nonexclusive factors to consider are:

(1) The taxpayer’s investment intent, (2) the nature of the

income to be derived from the activity, and (3) the frequency,

extent, and regularity of the taxpayer’s securities transactions.

Moller v. United States, supra at 813.     For a taxpayer to be a



     4
       In contrast to trade   or business expenses, a taxpayer’s
investment-related expenses   that are deductible under sec. 212
are subject to a limitation   under sec. 67(a) and do not reduce
alternative minimum taxable   income.
                                - 8 -

trader, the trading activity must be substantial, which means

“frequent, regular, and continuous enough to constitute a trade

or business” as opposed to sporadic trading.      Ball v.

Commissioner, T.C. Memo. 2000-245.      A taxpayer’s activities

constitute a trade or business where both of the following

requirements are met: (1) The taxpayer’s trading is substantial,

and (2) the taxpayer seeks to catch the swings in the daily

market movements and to profit from these short-term changes

rather than to profit from the long-term holding of investments.

Mayer v. Commissioner, supra. Respondent concedes that petitioner

meets the second requirement; thus, we focus on the first

requirement.

     As to the first requirement, we find petitioner’s trading

activity was not substantial.   Courts consider the number of

executed trades in a year and the amount of money involved in

those trades when evaluating whether a taxpayer’s trading

activities were substantial.    See, e.g., Mayer v. Commissioner,

supra; Paoli v. Commissioner, supra.      In Paoli, the Court held

trading activities were substantial when the taxpayers traded

stocks or options worth approximately $9 million.      In Mayer, the

Court considered over 1,100 executed sales and purchases in each

of the years at issue there to be substantial trading activity.

Trading activity was found to be insubstantial when a taxpayer

executed at most 83 purchases and 41 sales in one year and 76
                               - 9 -

purchases and 30 sales in the second year.   Moller v. United

States, supra at 813.

     In 2002, petitioner’s trading activity consisted of 46

purchases and 14 sales.   In 2003, he completed 109 purchases and

103 sales.   During the years at issue, petitioner did not trade 5

days a week.   Of the years at issue, he traded on more than 10

days in a given month only twice.   We also note that petitioner’s

collecting unemployment compensation during 2003 further

undermines his argument that he was engaged in a trade or

business during that year.   We conclude that petitioner was not

engaged in a trade or business of trading securities during the

years at issue and thus that his expenses related to his trading

activities are not deductible under section 162.   We also agree

with respondent’s determination that none of the expenses, but

for the $200 and $28 expenses allowed in the notice of

deficiency, are deductible by petitioner under section 212, in

that petitioner has failed to demonstrate that the expenses were

incurred for the production of income.   We also note in this

regard the applicability of section 274(h)(7), which disallows

any deduction under section 212 for expenses allocable to a

convention, seminar, or similar meeting.
                             - 10 -

     We have considered all petitioner’s arguments for holdings

contrary to those expressed herein and reject the arguments not

discussed herein as irrelevant or without merit.


                                        Decision will be entered

                                   for respondent.
