News Summary Los Angeles has begun sending out Business Tax Registration Certificate (BTRC) notices, particularly affecting active traders flagged by the California Franchise Tax Board. This initiative has created confusion, especially for those qualifying as own-account traders without client engagements. The notices raise questions about the tax obligations of traders regarding their personal trading gains. The city’s lack of clarity regarding exemptions adds to the uncertainty, urging those affected to consult tax advisors and respond to the notices to avoid penalties. Los Angeles has initiated the process of sending out Business Tax Registration Certificate (BTRC) notices to local residents, which has sparked confusion, particularly among active traders. These notices are directed towards individuals flagged by the California Franchise Tax Board. Among those receiving these notices are traders who qualify for trader tax status (TTS), which encompasses individuals conducting trading activities for their own accounts without engaging clients or receiving advisory fees. This outreach effort has raised significant questions regarding whether the trading gains achieved by these own-account traders could potentially be classified as taxable “gross receipts.” The Office of Finance employs data-matching techniques with the Franchise Tax Board to identify residents engaged in business-related activities, relying on reporting from Schedule C expenses, Schedule D gains, or Form 4797 trading income. Notably, recipients of BTRC notices could receive them even if their trading activity is entirely personal, devoid of any client relationships. For traders who file Schedule C, they typically assert Section 162 business expenses, while gains and losses are detailed on Form 8949/Schedule D or Form 4797. It is essential to differentiate the experiences of retail traders, who often transact without clients, from those engaged in more traditional economic activities that require interaction with clients or counterparties. This distinction suggests a logical argument for own-account traders who contend that their taxable gross receipts should be deemed $0. Compounding the confusion, Los Angeles has not provided any public exemption specifically addressing the concerns of traders, thus leaving many with uncertainties surrounding their tax obligations. According to Los Angeles Municipal Code §21.49, an agent or broker dealing as principal is mandated to include trading profits in gross receipts. However, this guideline is generally more applicable to market-makers and dealers who typically have client interactions, as opposed to retail traders who solely manage their trades. The AB63 Unit is tasked with mailing these BTRC notices. Recipients are encouraged to consider completing an Alternative Form to clarify their trading status as personal account traders. This form allows individuals to assert that they do not engage clients and to check a box indicating they should not be subject to City business tax. It is critical for recipients to respond to these notices; failure to do so may lead to estimated assessments and potential penalties. For own-account traders, the applicability of the LA business tax ideally should not be present. Yet, in the absence of a definitive published exemption and with §21.49 delineating stockbrokers’ obligations in regard to self-trading, difficulties related to documentation and compliance may arise. Additionally, traders may find some respite under the Small Business Exemption, which applies to businesses with worldwide gross receipts of $100,000 or less, potentially offering relief if registration is deemed necessary. While this information serves as a general guide, it does not constitute definitive legal or tax advice. Individuals affected by these developments are strongly advised to consult with their tax advisors to examine their specific situations in detail. The situation surrounding the BTRC notices continues to develop, and those involved must remain proactive in understanding their obligations as they navigate the complexities introduced by the City of Los Angeles. With financial repercussions in play and the risk of penalties looming, ensuring proper documentation and adherence to tax advice is imperative for all traders. Deeper Dive: News & Info About This Topic HERE Resources Additional Resources Forbes: Los Angeles Traders Face New Scrutiny Under City Business Tax Notices Wikipedia: Taxation in the United States Los Angeles Times: Trader Joe’s to Open 5 New Locations in California Google Search: Trader Joe’s California locations Reuters: Major Developments in Trump’s Trade War Google News: Trump Trade War Developments Wall Street Journal: Trump Tariffs and Los Angeles Port Encyclopedia Britannica: Tariff New York Times: Trump Tariffs on Eagle Creek Google Scholar: Trump tariffs
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