Trading in stocks in the us - investment or a business activity

TRADING IN STOCKS IN THE US - INVESTMENT OR A BUSINESS ACTIVITY

As per regulation section 1.864-2(c)(2)(i) -  In General - The term "engaged in trade or business within the United States" does not include the effecting of transactions in the United States in stocks or securities for the taxpayer's own account, irrespective of whether such transactions are effected by or through-

The taxpayer himself while present in the United States, Or employees of the taxpayer, whether or not such employees are present in the United States while effecting the transactions, or

As per regulation 1.864-2(c)(2)(i)(c) A broker, commission agent, custodian, or other agent of the taxpayer, whether or not such agent while effecting the transactions is (1) dependent or independent, or (2) resident, nonresident, or present, in the United States, and irrespective of whether any such employee or agent has discretionary authority to make decisions in effecting such transactions. For purposes of this paragraph, the term "securities" means any note, bond, debenture, or other evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing; and the effecting of transactions in stocks or securities includes buying, selling (whether or not by entering into short sales), or trading in stocks, securities, or contracts or options to buy or sell stocks or securities, on margin or otherwise, for the account and risk of the taxpayer, and any other activity closely related thereto (such as obtaining credit for the purpose of effectuating such buying, selling, or trading). The volume of stock of security transactions effected during the taxable year shall not be taken into account in determining under this subparagraph whether the taxpayer is engaged in trade or business within the United States. The application of this subdivision may be illustrated by the following

DEALER- BROKER

Dealers, Traders, and Investors in Securities

a. In General

Taxpayers who purchase and sell securities may be grouped into three categories:

•    investors; 
•    traders; and 
•    dealers.

Investors are not considered to be engaged in a trade or business and therefore realize capital gain or loss on securities transactions. Traders may be considered to be engaged in the trade or business of purchasing and selling securities for their own account, but, like investors, realize capital gain or loss on their securities transactions because they do not sell securities to "customers." Dealers (i.e., those who purchase and hold securities for sale to customers) are engaged in a trade or business and realize ordinary income and loss on the sale of securities, but may also hold securities for their own account as investments.

b. Investors and Traders

An investor purchases and holds securities as investments for his own account if the objective is to realize appreciation in value over time. It is well established that the management of investments does not constitute a trade or business regardless of the amount of time devoted to the activity.  A trader, in contrast, engages in a high volume of trades with the objective of generating profits from short-term price fluctuations, and realizes income principally from sales of securities rather than from dividends and interest.  Some courts have found traders to be engaged in a trade or business.  The key factors in determining whether such an individual is in the business of trading are the existence of an investment intent and the frequency, extent and regularity of the transactions.