News Summary The City of Los Angeles has initiated sending Business Tax Registration Certificate (BTRC) notices to residents engaging in trading activities without client interactions. This move, based on data from the California Franchise Tax Board, raises questions about the taxability of trading gains for individuals qualifying for Trader Tax Status (TTS). Those receiving notices are encouraged to clarify their situation but failure to respond could lead to penalties and assessments. The uncertainty regarding tax obligations for traders underscores the need for appropriate legal and tax advice. Los Angeles has begun sending Business Tax Registration Certificate (BTRC) notices to local residents identified by the California Franchise Tax Board as active traders. These notices target individuals who qualify for Trader Tax Status (TTS) but report having no clients, advisory fees, or broker-dealer registration. This initiative raises questions about whether trading gains for these individuals could be classified as taxable “gross receipts.” The city’s Office of Finance is employing data from the California Franchise Tax Board to pinpoint residents engaged in various business-related activities. Activities include filing for Schedule C expenses, Schedule D gains, or reporting trading income on Form 4797. It’s important to note that BTRC notices are triggered even for personal trading activities that do not involve customer interactions. If a trader files a Schedule C, they can only report Section 162 business expenses, while gains or losses are recorded on forms such as Form 8949/Schedule D or Form 4797 for Section 475 MTM ordinary treatment. None of these activities involve clients, leading to a reasonable argument that taxable gross receipts for these traders should equal $0. However, the absence of a specific published exemption for traders contributes to ongoing uncertainty. Classification of Trading Activities Retail traders typically execute trades that lack customer interactions, which bolsters the idea that their gross receipts may reach $0. This situation diverges from other categories that include customers or counterparties. According to L.A.M.C. §21.49, agents or brokers trading as principals must factor trading profits into their gross receipts; this taxation approach generally applies to market-makers and dealers engaged in client business. BTRC Notice Process The AB63 Unit of the City of Los Angeles is responsible for distributing BTRC notices. Traders receiving these notices are encouraged to complete the Alternative Form, which allows them to clarify that they trade exclusively for their own account and have no clients. Moreover, recipients should check the box indicating, “I am not subject to City business tax” and provide relevant reasoning on the back of the notice. Potential Consequences of Inaction It is crucial for recipients to respond adequately to these BTRC notices. Failure to do so could result in estimated assessments and penalties levied against the traders. Although business tax in Los Angeles is generally not expected to apply to traders acting solely on their own account, the lack of a definitive exemption and specific taxation rules concerning “stockbrokers trading on their own accounts” may present challenges for these individuals. To alleviate some financial burdens, a Small Business Exemption is available, granting relief to those whose worldwide gross receipts are less than or equal to $100,000. Consultation Recommended This information is meant to serve as a guide and does not constitute legal or tax advice. Traders are strongly encouraged to consult a tax advisor regarding their personal situations to ensure compliance and understand their obligations thoroughly. Deeper Dive: News & Info About This Topic HERE Resources Los Angeles Issues Business Tax Notices to Traders NBA Offseason Shakeup with Key Trades and Signings Boston Celtics Trade Georges Niang to Utah Jazz Ford Faces Rough Road Ahead with Rising Tariff Costs Protests Erupt as Trump Visits Scotland for Private Trip Additional Resources Forbes: Los Angeles Traders Face New Scrutiny Under City Business Tax Notices Wikipedia: Taxation in the United States Los Angeles Times: Trump’s Volatile Trade Policies Create New Problems for California State Budget Encyclopedia Britannica: Tariff Sportico: Luka Doncic’s Trade Contract Tax Implications Google Search: trade policies California GlobeSt: Los Angeles Ports Brace for Impact of Trade War Google News: California tariffs
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