C.F.R. » Title 26 » CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY › SUBCHAPTER A—INCOME TAX › PART 1—INCOME TAXES

26 C.F.R. § 1.471-5

Inventories by dealers in securities

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A dealer in securities who in his books of account regularly inventories unsold securities on hand either—

(a) At cost,

(b) At cost or market, whichever is lower, or

(c) At market value,

may make his return upon the basis upon which his accounts are kept, provided that a description of the method employed is included in or attached to the return, that all the securities are inventoried by the same method, and that such method is adhered to in subsequent years, unless another method is authorized by the Commissioner pursuant to a written application therefor filed as provided in paragraph (e) of § 1.446-1. A dealer in securities in whose books of account separate computations of the gain or loss from the sale of the various lots of securities sold are made on the basis of the cost of each lot shall be regarded, for the purposes of this section, as regularly inventorying his securities at cost. For the purposes of this section, a dealer in securities is a merchant of securities, whether an individual, partnership, or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale to customers; that is, one who as a merchant buys securities and sells them to customers with a view to the gains and profits that may be derived therefrom. If such business is simply a branch of the activities carried on by such person, the securities inventoried as provided in this section may include only those held for purposes of resale and not for investment. Taxpayers who buy and sell or hold securities for investment or speculation, irrespective of whether such buying or selling constitutes the carrying on of a trade or business, and officers of corporations and members of partnerships who in their individual capacities buy and sell securities, are not dealers in securities within the meaning of this section. See §§ 1.263A-1 and 1.263A-3 for rules regarding the treatment of costs with respect to property acquired for resale. [T.D. 6500, 25 FR 11725, Nov. 26, 1960, as amended by T.D. 8131, 52 FR 10084, Mar. 30, 1987; T.D. 8482, 58 FR 42234, Aug. 9, 1993]
Notes of Decisions
Cited in 13 cases (1 in the last 5 years), 1969–2021 · leading case: Marrin v. Comm'r, 1997 T.C. Memo. 24 (Tax Ct. 1997).
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Marrin v. Comm'r, 1997 T.C. Memo. 24 (Tax Ct. 1997). · cites it 2× “1.471-5, Income Tax Regs. ↩ To the extent this regulatory definition bears on this case, we believe petitioner cannot meet it.”
Golden Gate Litho v. Comm'r, 1998 T.C. Memo. 184 (Tax Ct. 1998). · cites it 2× “Respondent failed to comply with the rules for identifying items properly included in inventory and for properly valuing inventory items.”
McDonough v. Comm'r, 43 T.C.M. 1273 (Tax Ct. 1982). · cites it 2× “Neither petitioners nor the McDonough River Company partnership are dealers in securities within the meaning of Treasury Regulation § 1.”
Connelly v. Comm'r, 45 T.C.M. 49 (Tax Ct. 1982). · cites it 2× “Badger was engaged in the trade or business of buying and selling for his own account is sufficient for the purposes of this case. Having so found, it follows that the omission of income is to be measured by a comparison of the gross receipts or sales figure disclosed in the…”
M.D.C. Holdings, Inc. v. State Ex Rel. Arizona Dep't of Revenue, 216 P.3d 1208 (Ariz. Ct. App. 2009). “It points out that federal law treats MDC and similar entities as “dealers in securities” because they are merchants that hold securities like mortgages as inventory in the ordinary course of trade or business.”
Wilkinson-Beane, Inc. v. Comm'r, 28 T.C.M. 450 (Tax Ct. 1969). · cites it 2× “), legislative history, the Commissioner's rulings or even the income tax case law for we have found no helpful discussion or definition of "merchandise" therein nor have the parties pointed us to one.”
Stephens, Inc. v. United States, 321 F. Supp. 1159 (E.D. Ark. 1970). “471-5, 26 C.F.R., section 1.471-5. Under that Regulation, a “dealer in securities” is a merchant of securities who has a regular place of business, and who is regularly engaged in the purchase of securities and their resale to customers, that is to say, one who, as a merchant,…”
Hagen v. Comm'r, 57 T.C.M. 1489 (Tax Ct. 1989). · cites it 4× “A securities dealer who inventories unsold securities on hand at cost, market, or the lower of cost or market may make his return on the basis of how those accounts are kept.”
Pac. Sec. v. Comm'r, 63 T.C.M. 2060 (Tax Ct. 1992). · cites it 14× “Respondent issued a Notice of Final Partnership Administrative Adjustments in which he (1) disallowed an ordinary loss of $ 1,037,520 arising from the write-down under section 1.471-5, Income Tax Regs.”
McDonough v. Comm'r, 36 T.C.M. 213 (Tax Ct. 1977). · cites it 2× “The parties have stipulated that for the purposes of this case, the operation of a brokerage margin account was generally as follows: 9 The margin account as recorded on the broker's books reflects the debit balance, representing the amount loaned to the customer, and the…”
CITGO Petroleum Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2021). “” 26 CFR § 1.471-5 (c) (Inventories by dealers in securities).”
Bielfeldt v. Comm'r, 1998 T.C. Memo. 394 (Tax Ct. 1998). · cites it 2× “He personally owned all of the Treasury securities that he traded, he traded those securities only for his own account, and he reported on his personal income tax returns the gains and losses on his trades.”
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