Happy Veterans Day. In honor of service to our country, we offer free consultations and trader tax guides to veterans, for a limited time and quantity. Please contact customer service within the week to take us up on this offer. Thank you.

Conference Call & Podcast This Week:

Thursday, Nov. 11, 4:15 - 5:30 pm ET
Dial 312-878-0224, Access Code: 603-682-315 An mp3 streaming podcast will be available after the call. Click here for podcast archives.

Topics: We have covered many of these topics before but include updates for this week below.

Important Forex Tax Update:
We are working on a major update to our forex tax treatment research and content, which will be published on our blog soon. Don't get alarmed, we expect that our new conclusions will confirm prior challenges on spot forex tax treatment and support our prior stated conclusions too. We continue to believe that retail spot forex contracts in major currencies may qualify for lower 60/40 tax rates in Section 1256g (foreign currency contracts), riding the coattails of interbank forward contracts - after making a valid opt-out election from Section 988 (foreign currency transactions). The new CFTC forex trading rules may help our case, since the CFTC Chairman's "Gensler letter" implies that the term "spot forex" is a misnomer since it's "futures-like."

Learn about our current tax research, latest take on problems in these positions, new IRS and tax court challenges, and more. Our tax attorney Mark Feldman JD and other attorneys in our industry are leading this charge.

We plan to offer forex traders revised "substantial authority" tax opinion letters to support their forex tax treatment. Several large forex traders asked for these opinion letters because they and their tax preparers want peace of mind on their tax filings and protection from potential tax penalties. Current rules require "substantial authority" which does not mean it's a guarantee to win.

As pointed out on prior calls and blogs, some forex traders are considering currency futures since - after the new CFTC forex rules -- the leverage is similar to retail spot forex, plus the lower 60/40 tax rates clearly apply to futures. In last week's blog, "Is U.S. forex trading safe?", we pointed out that the NFA recently fined some retail forex brokers for abusive practices on their software trading platforms. Why take a risk on spot forex tax treatment if you can trade currency futures instead? It's not that simple, of course, and there are many other factors to consider.

As we have indicated, spot forex isn't specifically mentioned by the IRS and court cases as being specifically allowed in Section 1256g; only forwards are mentioned, hence the risk in tax treatment. Recent court cases and IRS revenue ruling 2007-71 barred forex options from Section 1256g because they don't require settlement with the currency; the option holder could decide not to exercise. Forward forex contracts require settlement in physical currency and we argue that spot forex does too. We have many other arguments -- this call is just a taste of the big picture issues.

There's a lot at stake tax-wise. Remember, with lower Section 1256 60/40 tax rates, the maximum blended tax rate is 23 percent, a whopping 12 percent less than the current maximum ordinary tax rate of 35 percent. Forex traders are counting on GreenTraderTax to defend their 60/40 tax treatment on spot forex.

Year-end tax planning:
Click here for Robert Green's blog article dated Oct. 19, 2010. Green's Forbes blog version.

Brinksmanship and partisan talk continues in Washington DC over extension of the Bush tax cuts. Early reports from the deficit commission are touching the third-rail of politics (social security) and that may heighten the tax, spending and deficit cutting debate, leading to further gridlock in the upcoming lame-duck session.

Look out for tax tricks in this game of tax chess, too. Democrats still seek to de-couple the Bush tax cuts, making the middle-class cuts permanent and extend them for the wealthy for two years. But this is a trick: When the cuts expire before the 2012 presidential election, President Obama will continue his argument about not wanting to expand the deficit to pay for rich tax cuts. He will call Republicans hypocritical about deficit reform. It's obvious Republicans will therefore not allow de-coupling.

Another tricky idea: Tie the tax cut extension period to major new tax reform. After the Obama health care reform debacle, who believes this type of major bi-partisan reform is achievable, especially if it's wed to comprehensive reform of the deficit and spending crisis?

I hope Congress extends the Bush tax cuts and the AMT patch quickly in the lame-duck session, and it works out comprehensive tax, spending and deficit changes before the next election.

We need to do our year-end tax planning despite any tax-change drama. We still have time to execute plans before year-end and we're hoping Congress and the President will act sooner than later.

Read our latest blog on year-end tax planning and we suggest that you get started with our CPAs at GreenTraderTax on what's best for you. Every client's situation is different.

New CFTC forex rules went into effect on Oct. 18th for RFED accounts. Foreign banks have an extra 270 days to comply. We will continue discussing the fallout from these rule changes. Several foreign brokers claim to be banks to have 270 more days, but they aren't banks; as brokers they're now unregistered non-compliant counterparties for forex transactions with Americans.

Financial-transaction tax (FTT). A FTT of every form and stripe for those desperate for funds worldwide is back on the radar screen. Advocates continue to be unions, the Robin Hood Foundation and the UN.

After the Fed's QE2 bombshell felt around the world, "hot money" issues in emerging markets are becoming a real concern for many. Several emerging-market countries like Brazil, Korea, China, Thailand and others are talking about or have already passed capital controls to slow down hot money inflows. Brazil and a few other countries are passing FTTs, in the form of a toll on money inflows only. I hope Congress doesn't consider Fed QE money to be hot money in the U.S.

Dodd-Frank Fin Reg changes. Republicans are talking about repealing or limiting Dodd-Frank Fin Reg, along with repealing or de-funding Obama health care reform. The Dodd-Frank Volcker Rule -- restriction on prop trading and bank hedge funds -- is being debated again. I noticed several large banks had a "perfect" quarter (per the WSJ) in trading this past quarter, delivering important profits, buttressing their fledgling recovery.

President Obama is selling the provisions of Dodd-Frank Fin Reg at the Seoul Korea G-20 meeting this weekend, and there may not be many takers or followers. What's going to be the fate of Dodd-Frank now? Many Dodd-Frank provisions for investment managers don't take effect until July 2011, so there may be time to reassess.

Investment management business.

Entities and retirement plans. There's still sufficient time in 2010 to form your own trading entity and related retirement plan to save more taxes this year.

Don't forget our important year-end strategies with new entities. You can form an entity ASAP and either elect Section 475 MTM or not by year-end since it's within the 75-day election period for new taxpayers (new entities). If necessary, you can use a do-over entity in 2011. It's a big gamble navigating your way out of a large capital loss hole and our entity strategies are the answer. Learn more about this strategy on our entity formation page.

Our consultations with Robert A. Green, CPA are on promotion until Nov. 30, so consider discussing your issues with him soon.

Hosts: Robert A. Green, CPA/CEO of GreenTraderTax, GreenTraderFunds & Traders Association, and Brent Gillett, JD of Investment Law Group of Gillett Walker, LLP.



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