Mark-to-Market Accounting Method for Dealers
in Securities
Generally, dealers in securities must use the mark-to-market method
of accounting for securities. Previously, a person holding nonfinancial
customer paper (trade receivables) could elect to be treated as a dealer
in securities.
For tax years ending after July 22, 1998, the mark-to-market accounting
method cannot be used for any nonfinancial customer paper.
Nonfinancial customer paper defined.
Nonfinancial customer paper is any receivable that meets all of the following
requirements.
- It is a note, bond, debenture, or other evidence of indebtedness.
- It is from the sale of nonfinancial goods or services by a person
whose principal business activity is selling or providing nonfinancial
goods or services.
- It is held by the person making the sale described in (2), or a
related person, since the time of issue.
Change in method of accounting. If the
new rule affects you, you must change your method of accounting. The change
is considered to be initiated by you with the consent of the IRS. The required
adjustments will be taken into account ratably over four tax years, beginning
with the year of change. See Form
3115, Application for Change in Accounting Method.
More information. For more information,
see section 475 of the Internal Revenue Code and Revenue Procedure 98-60.
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