Transfer Securities Between MTM & non-MTM Accounts

Those who have both investment accounts and trade as a Trader in Securities with a mark to market election realized the tax characteristics of both types of accounts are significantly different and may want to take advantage of those characteristics by transferring securities between the two accounts in order to take advantage of those characteristics.

Some possible reasons to transfer securities between investment and MTM accounts:

• Unrealized loss exceeding the $3,000 limitation in an investment account - transfer to MTM account in order to deduct the entire loss against ordinary income

• Substantial unrealized gain in a MTM account - transfer to investment account to secure long-term or short-term capital gain in order to offset against existing investment losses

These are great ideas and it shows that you are thinking in a tax-centric way. However, although there is only one Internal Revenue Code section that partially addresses this, the bottom-line is that this essentially amounts to stock "sleight of hand" and would not pass muster upon IRS audit.

Generally speaking, the statutory guidance [IRC Sec 475(f)(1)(B) and Prop Regs Sec 1.475(f)-2)a)] indicates that the investment security should not be identified with the MTM securities and the converse of that - MTM securities not being identified with investment securities - would also be true.

I have a more lengthy explanation of this in the Mark to Market pages of this website so I direct your attention there if you care to learn more about what my opinion of this strategy would be.