United States of America v. Paul Stockler

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
PAUL STOCKLER,
Defendant - Appellant.
No. 16-30100
D.C. No. 3:14-cr-00059-RRB-1
MEMORANDUM*
Appeal from the United States District Court
for the District of Alaska
Ralph R. Beistline, District Judge, Presiding
Submitted August 15, 2017**
Anchorage, Alaska
Before: GRABER, CLIFTON, and M. SMITH, Circuit Judges.
Petitioner Paul Stockler pleaded guilty to willfully failing to file federal
income tax returns for tax years 2006, 2008, and 2009. Under the United States
Sentencing Guidelines, the sentencing range for this offense turns in part on the
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
** The panel unanimously concludes that this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
FILED
AUG 22 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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amount of the tax loss attributable to Stockler’s conduct. See U.S.S.G. § 2T1.1(a).
Following Stockler’s guilty plea, the district court held an evidentiary hearing to
determine the relevant tax loss amount. Stockler argued at the hearing that he was
entitled to retroactively seek mark-to-market treatment under 26 U.S.C. § 475(f),
such that his trading losses could be treated as ordinary losses as opposed to capital
losses and would therefore not be subject to the $3,000 deduction cap contained in
26 U.S.C. § 1211(b). The district court found that Stockler was not entitled to
retroactive mark-to-market election and calculated his loss amount accordingly.
Stockler now appeals the sentence imposed upon him by the district court, arguing
that he was entitled to mark-to-market treatment for the purpose of determining the
tax loss amount. We hold that the district court did not clearly err in finding that
Stockler failed to qualify for mark-to-market treatment. We therefore affirm.
We review the district court’s factual findings for clear error. United States
v. Garcia, 497 F.3d 964, 969 (9th Cir. 2007).
To qualify for mark-to-market election, a taxpayer must be in the business of
trading securities. See 26 U.S.C. § 475(f)(1)(A). In Purvis v. Commissioner, 530
F.2d 1332 (9th Cir. 1976) (per curiam), we summarized the relevant considerations
for finding that a taxpayer constitutes a trader of securities as whether “securities are
bought and sold with reasonable frequency in an endeavor to catch the swings in the
daily market movements and profit thereby on a short term basis.” Id. at 1334

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(quoting Chiang Hsiao Liang v. Comm’r, 23 T.C. 1040, 1043 (1955)). Internal
Revenue Service (IRS) Publication 550 takes a similar approach, stating that, “[t]o
be engaged in business as a trader in securities,” a taxpayer (1) “must seek to profit
from daily market movements in the prices of securities,” (2) his “activity must be
substantial,” and (3) he “must carry on the activity with continuity and regularity.”
I.R.S. Pub. 550 (2005).
The district court applied the framework set forth in IRS Publication 550 and
found, based on evidence presented at the hearing, that Stockler “did not have a
business license for [his trading] activity; he did not file a schedule C for a trading
business; he held the securities for relatively longer periods of time as compared to
professional day traders; he did not produce any income from day trading to provide
for a livelihood; he devoted the majority of his time to his law practice and not to
day trading; and he held himself out as a lawyer, not a day trader.” We considered
some of these same factors in Purvis to uphold a finding that the taxpayer was not
in the business of trading: The taxpayer in that case held himself out as an attorney,
failed to file a schedule C with respect to any business of trading, and did not
maintain separate bank accounts to assist his trading activities. 530 F.2d at 1334.
Evidence at the hearing additionally showed that in 2005, Stockler traded on
only approximately 59% of the open market days. Revenue Agent Peter Orth
testified that professional traders ordinarily trade on a greater percentage of market

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days. Furthermore, while the district court found that Stockler’s trading was
continuous in 2005, it found that his trading was not continuous in 2006: During that
year, Stockler had a period of four-and-a-half months during which he did not
engage in any day trading. Finally, Stockler expressly stated at the hearing that he
did not consider himself to have a trading business.
In light of the evidence in the record, the district court did not clearly err in
finding that Stockler was not in the business of trading securities. Because Stockler
was not in the business of trading securities, he was not eligible for mark-to-market
treatment under § 475(f). We therefore decline to reach the question whether, had
Stockler qualified for mark-to-market treatment, his election of such treatment
would have been timely.
AFFIRMED.

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