IT-479R "Transactions in Securities"

11. Some of the factors to be considered in ascertaining whether the taxpayer's course of conduct indicates the carrying on of a business are as follows:

(a) frequency of transactions - a history of extensive buying and selling of securities or of a quick turnover of properties,

(b) period of ownership - securities are usually owned only for a short period of time,

(c) knowledge of securities markets - the taxpayer has some knowledge of or experience in the securities markets,

(d) security transactions form a part of a taxpayer's ordinary business,

(e) time spent - a substantial part of the taxpayer's time is spent studying the securities markets and investigating potential purchases,

(f) financing - security purchases are financed primarily on margin or by some other form of debt,

(g) advertising - the taxpayer has advertised or otherwise made it known that he is willing to purchase securities, and

(h) in the case of shares, their nature - normally speculative in nature or of a non-dividend type.

Ordinary taxpayers generally entitled to capital treatment on share option transactions

For taxpayers, other than those described in 24 above [re dealers, trading business, special information], it is a question of fact whether the gains or losses on share option transactions are on income account or capital account. However, the Department generally presumes that

(a) the gain or loss realized by a holder of options is on the same account as the holder's transactions in shares;

(b) the gain or loss realized by a writer of covered options is on the same account as the underlying shares; and

(c) the gain or loss realized by a writer of naked options is normally on income account. However, the Department will accept reporting of gains and losses on capital account provided this practice is followed consistently from year to year.