The opinion
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KAZIM Z. ACAR,
Plaintiff-Appellant, No. 06-16820
v.
D.C. No.
CV-06-00344-PJH
COMMISSIONER OF INTERNAL
REVENUE SERVICE, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Phyllis J. Hamilton, District Judge, Presiding
Argued and Submitted
May 15, 2008—San Francisco, California
Filed September 23, 2008
Before: Betty B. Fletcher and Pamela Ann Rymer,
Circuit Judges, and Kevin Thomas Duffy,* District Judge.
Opinion by Judge B. Fletcher
*The Honorable Kevin Thomas Duffy, Senior United States District
Judge for the Southern District of New York, sitting by designation.
13473
13476 ACAR v. CIR
COUNSEL
Plaintiff-appellant Kazim Z. Acar, pro se.
Richard Farber, Patrick Urda (argued), Tax Division, Depart-
ment of Justice, Washington, D.C., for the defendant-
appellee.
OPINION
BETTY B. FLETCHER, Circuit Judge:
The district court, on summary judgment, upheld the deci-
sion of the Internal Revenue Service (“IRS”) Appeals Office
that Plaintiff Kazim Z. Acar (“Acar”) was not entitled to a
refund for the 1999 tax year on the basis of his purported
retroactive election of the mark-to-market method of account-
ing under I.R.C. § 475(f) because (1) the election was
untimely under Revenue Procedure 99-17, and (2) Acar was
not entitled to a time extension under Treasury Regulation
§ 301.9100-3. Acar appeals. We have jurisdiction under 28
U.S.C. § 1291, and we affirm.
I.
As part of the Taxpayer Relief Act of 1997, Congress
added section 475(f) to the Internal Revenue Code to allow
taxpayers engaged in a trade or business as a securities trader
to elect the mark-to-market method of accounting in calculat-
ing their tax obligation. I.R.C. § 475(f). A taxpayer who has
made such an election must recognize gain or loss on any
security held in connection with the securities trading busi-
ACAR v. CIR 13477
ness as if the security were sold for its fair market value on
the last business day of the taxable year. I.R.C.
§ 475(f)(1)(A)(i). Any gain or loss must be taken into account
in that year. I.R.C. § 475(f)(1)(A)(ii). The practical effect of
a section 475(f) election is that the gain or loss on held securi-
ties is treated as ordinary income or loss, see I.R.C.
§ 475(d)(3)(A)(i), (f)(1)(D), instead of as capital gain or loss,
see I.R.C. §§ 1221(a), 1222. A section 475(f) election is
advantageous for a taxpayer who has incurred trading losses
because, by treating them as ordinary losses, he may deduct
them fully from ordinary income and is not subject to the cap-
ital loss limitation that would allow such a deduction only to
the extent of capital gains plus $3,000. See I.R.C. §§ 165,
1211. On the other hand, making a section 475(f) election is
disadvantageous for a taxpayer who has made trading gains
because those gains will be subject to the higher ordinary
income tax rate instead of the lower capital gains tax rate. A
section 475(f) election remains in effect until the taxpayer
revokes it with the consent of the Secretary of the Treasury.
See I.R.C. § 475(f)(3).
On February 8, 1999, the IRS issued Revenue Procedure
99-17, which sets forth the steps necessary to make a proper
election under section 475.1 See Rev. Proc. 99-17, 1999-1
C.B. 503, superseded in part by Rev. Proc. 99-49, 1999-2
C.B. 725. The Revenue Procedure provides that a taxpayer
who wishes to elect mark-to-market accounting for a tax year
after 1998 must file the necessary documents with his tax
return for the year preceding the year for which he seeks the
election. See Rev. Proc. 99-17 at § 5.03. Thus, to elect mark-
to-market accounting for the 1999 tax year—the tax year at
issue in this case—a taxpayer must file the necessary docu-
ments by April 15, 1999, the due date for his 1998 tax return.
1
Congress delegated to the Commissioner of Internal Revenue the
responsibility for specifying the manner in which a section 475(f) election
is to be made. See I.R.C. § 475(g); H.R. Rep. No. 105-148, § 1, at 446
(1997).
13478 ACAR v. CIR
Treasury Regulation § 301.9100-3, promulgated pursuant
to I.R.C. § 7805,2 provides for extensions of time for making
elections, such as a section 475(f) election, that do not qualify
for an automatic time extension. See Treas. Reg. §§ 301.9100-
1, 9100-3. Under the regulation, a time extension will be
granted “when the taxpayer provides the evidence . . . to
establish to the satisfaction of the Commissioner [of Internal
Revenue] that the taxpayer acted reasonably and in good faith,
and the grant of relief will not prejudice the interests of the
government.” Treas. Reg. § 301.9100-3(a).
Between the late 1970s and 2004, Acar worked as a finan-
cial planner while also trading securities for himself. On his
1999 tax return, filed in 2000, Acar claimed a deduction for
$3,000 in capital losses based on losses in the amount of
$954,041 incurred in trading securities. Acar made no election
for mark-to-market accounting until February 2002, when he
informed the IRS of his desire to make a section 475(f) elec-
tion for his securities trading beginning in tax year 1999.3
Acar also provided the IRS with amended tax returns for the
1999 and 2000 tax years. On his amended 1999 return, Acar
treated his trading losses as ordinary losses and, on that basis,
claimed a refund for a tax overpayment of $46,396. On his
amended 2000 return, Acar claimed as net operating losses
the excess ordinary losses from 1999. Because Acar eventu-
ally settled with the IRS regarding his 2000 return, only the
claimed refund for the 1999 tax year is at issue here.
In September 2002, the IRS conducted an audit and dis-
puted Acar’s claimed refund. The parties litigated the matter
2
I.R.C. § 7805 provides in relevant part that “any election under [the
Internal Revenue Code] shall be made at such time and in such manner as
the Secretary shall prescribe.” I.R.C. § 7805(d).
3
Acar initially failed to provide the IRS with the required Form 3115,
which is an official request for the Commissioner’s authorization to
change accounting methods. See Rev. Proc. 99-17, §§ 2.03, 5.03. How-
ever, Acar eventually provided the form with his 2003 tax return.
ACAR v. CIR 13479
before the IRS Appeals Office, which partially disallowed
Acar’s claimed refund on the grounds that the section 475(f)
election was untimely under Revenue Procedure 99-17 and
that Acar did not qualify for a time extension under Treasury
Regulation § 301.9100-3.4
In January 2006, Acar filed a pro se complaint in the dis-
trict court, appealing the decision of the IRS Appeals Office.
The government moved for summary judgment, arguing that:
(1) Acar was not eligible to use mark-to-market accounting
under section 475(f) because he was not a trader in securities
in light of the allegedly small number of trades he made; (2)
Acar was not entitled to use mark-to-market accounting
because his election was untimely; and (3) Acar did not meet
the requirements of Treasury Regulation § 301.9100-3 for
obtaining a time extension for making the section 475(f) elec-
tion. The district court rejected the government’s first argu-
ment on the ground that there existed a genuine issue of
material fact as to whether Acar was a trader in securities.
However, the court accepted the government’s remaining two
arguments. Accordingly, the court granted the government’s
motion for summary judgment.
Acar filed a timely pro se appeal.
II.
Summary judgment should be granted “if the pleadings, the
discovery and disclosure materials on file, and any affidavits
show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(c).
We review the district court’s grant of summary judgment
de novo. Shotgun Delivery, Inc. v. United States, 269 F.3d
4
The IRS Appeals Office partially allowed the claimed refund on
grounds unrelated to the section 475(f) election.
13480 ACAR v. CIR
969, 971 (9th Cir. 2001). We must determine, viewing the
evidence in the light most favorable to the non-moving party,
whether there are any genuine issues of material fact and
whether the district court correctly applied the substantive
law. Card v. City of Everett, 520 F.3d 1009, 1013 (9th Cir.
2008).
III.
A.
[1] We agree with the district court that Acar’s § 475(f)
election was untimely. Revenue Procedure 99-17 provides in
relevant part that “for a taxpayer to make a § 475(e) or (f)
election that is effective for a taxable year beginning on or
after January 1, 1999, the taxpayer must file a statement that
satisfies the requirements . . . of this revenue procedure . . .
not later than the due date (without regard to extensions) of
the original federal income tax return for the taxable year
immediately preceding the election year . . . .” Rev. Proc. 99-
17, § 5.03(1). It is undisputed that Acar did not file the neces-
sary forms for his section 475(f) election until February 2002,
well after the April 15, 1999 due date provided by Revenue
Procedure 99-17.
Acar neither challenges the validity of Revenue Procedure
99-17 nor disputes that his election was untimely under it.
Instead, Acar argues that he did not have a reasonable amount
of time to file the election before the due date because of the
short time period between the issuance of Revenue Procedure
99-17 in February 1999 and the due date for making the elec-
tion. However, this argument is without merit because Acar
testified in his deposition that he did not become aware of the
provisions of section 475(f) until early 2002, almost three
years after the due date for the 1999 tax year. Accordingly,
Acar never could have made a timely election even if Reve-
nue Procedure 99-17 had been issued earlier than February
1999.
ACAR v. CIR 13481
B.
We also agree with the district court that Acar does not
qualify for a time extension under Treasury Regulation
§ 301.9100-3.
[2] Under the regulation, a time extension will be granted
only if the taxpayer “provides the evidence . . . to establish to
the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith . . . .” Id. § 9100-3(a). While the
regulation sets forth several categories of circumstances in
which a taxpayer is deemed to have acted reasonably and in
good faith, id. § 9100-3(b)(1), it also provides three excep-
tions under which a taxpayer is deemed to have not acted rea-
sonably and in good faith, even if the taxpayer falls into one
or more of the aforementioned categories, id. § 9100-3(b)(3).
See Vines v. Comm’r, 126 T.C. 279, 2006 WL 1280960, *7-
9 (U.S. Tax Ct. 2006). One of these exceptions provides that
a taxpayer will be deemed not to have acted in good faith if
he
[u]ses hindsight in requesting relief. If specific facts
have changed since the due date for making the elec-
tion that make the election advantageous to a tax-
payer, the IRS will not ordinarily grant relief. In
such a case, the IRS will grant relief only when the
taxpayer provides strong proof that the taxpayer’s
decision to seek relief did not involve hindsight.
Treas. Reg. § 301.9100-3(b)(3)(iii). Both the IRS Appeals
Office and the district court concluded that Acar was not enti-
tled to a time extension because he had used hindsight in fil-
ing the late election.5
5
The district court also found that Acar had submitted no facts establish-
ing that he fell into any of the categories of circumstances in which a tax-
payer is deemed to have acted reasonably and in good faith. See Treas.
Reg. § 301.9100-3(b)(1). We need not review that finding because we
conclude that the IRS Appeals Office and the district court were not
clearly erroneous in holding that Acar used “hindsight” in filing the late
section 475(f) election and therefore was not entitled to a time extension
in any event. See id. § 9100-3(b)(3)(iii).
13482 ACAR v. CIR
[3] In Vines, the Tax Court interpreted the “hindsight”
exception in the context of a late section 475(f) election and
concluded that “the relevant inquiry is whether allowing a late
election gives the taxpayer some advantage that was not avail-
able on the due date.” 2006 WL 1280960 at *10. The Tax
Court in Vines concluded that the petitioner had not used
hindsight within the meaning of § 301.9100-3(b)(3)(iii)
because
the only fact that changed after the due date for mak-
ing the election was the discovery of the availability
of the election itself. Petitioner conducted no trading
activities and incurred no further losses between the
time he should have filed the section 475(f) election
and the date he actually filed the election. If a late
election is allowed, petitioner will not be entitled to
anything more than that to which he would have
been entitled had he timely made the election.
Id. at *10. However, the Vines court contrasted the case
before it with Lehrer v. Commissioner, T.C.M. 2005-167,
2005 WL 1607743 (U.S. Tax Ct. 2005), in which “[t]he tax-
payers sought retroactively to convert their capital losses into
ordinary losses several years later, with continued trading in
the interim, in order to escape a deficiency and a section 6662
accuracy-related penalty.” Vines, 2006 WL 1280960, at *10
(citing Lehrer, 2005 WL 1607743, at *1). The Vines court
found that “[t]he taxpayers in Lehrer are the classic example
of taxpayers who seek to use the benefit of hindsight.” Id.
In a subsequent case, the Tax Court concluded that a tax-
payer used hindsight under the regulation when he filed a
§ 475(f) election years after it was due, while having contin-
ued to trade securities in the interim, in order to convert capi-
tal losses to ordinary losses. See Knish v. Comm’r, T.C.M.
2006-268, 2006 WL 3725132, *5 (U.S. Tax Ct. 2006) (“A
taxpayer attempting to make a mark-to-market election years
after it is due (while continuing to trade in the meantime) in
ACAR v. CIR 13483
an attempt to convert capital losses to ordinary losses is a
classic example of a taxpayer seeking to use hindsight.” (cita-
tions omitted)); see also Mezrah v. Comm’r, T.C.M. 2008-
123, 2008 WL 1912432, *4 n.5 (U.S. Tax Ct. 2008) (explain-
ing that in Knish the Tax Court found § 301.9100-3 relief “un-
available . . . because the taxpayers used hindsight to make
the mark-to-market election when it was most advanta-
geous.”).
[4] While we are not bound by the Tax Court’s interpreta-
tion of a Treasury regulation, see UnionBanCal Corp. v.
Comm’r, 305 F.3d 976, 981 (9th Cir. 2002) (“We review the
Tax Court’s interpretation of tax code provisions, regulations,
and treaties de novo.”), we agree with the Tax Court’s inter-
pretation of Treasury Regulation § 301.9100-3(b)(3)(iii) as
applied to a late § 475(f) election. In this case, allowing the
late election would clearly give Acar “some advantage that
was not available on the [April 15, 1999] due date,” Vines,
2006 WL 1280960 at *10, namely the knowledge that he
would incur trading losses, as opposed to trading gains, in the
1999 tax year (and subsequent years). With the benefit of that
knowledge, Acar in 2002 sought to make a retroactive section
475(f) election in order to convert what had been capital
losses on his original 1999 tax form into ordinary losses and,
on that basis, claim a refund. Acar has provided no evidence
indicating that he did not use hindsight in filing the late elec-
tion. Accordingly, the undisputed evidence shows Acar used
“hindsight” in filing the late election within the meaning of
Treasury Regulation § 301.9100-3(b)(3)(iii).
Acar argues that our interpretation of “hindsight” conflicts
with the preamble to the final Treasury regulations of
§ 301.9100. In the preamble, the Secretary of the Treasury
stated:
There are two policies that must be balanced in for-
mulating the standards for § 301.9100 relief. The
first is the policy of promoting efficient tax adminis-
13484 ACAR v. CIR
tration by providing limited time periods for taxpay-
ers to choose among alternative tax treatments and
encouraging prompt tax reporting. The second is the
policy of permitting taxpayers that are in reasonable
compliance with the tax laws to minimize their tax
liability by collecting from them only the amount of
tax they would have paid if they had been fully
informed and well advised.
Requirements Respecting the Adoption or Change of
Accounting Method, 62 Fed. Reg. 68167-01, 68168 (Dec. 31,
1997).
[5] We find no conflict between this general statement and
our specific application of the “hindsight” exception. The pre-
amble states as one of its policies that a taxpayer should not
pay more tax than he would have if he had been “fully
informed and well advised.” That statement does not suggest,
however, that a taxpayer should be permitted to take advan-
tage of knowledge that he could not have had when the elec-
tion was due but that allows him, several years later, to elect
retroactively the most advantageous accounting method.
Acar also argues that he could not have used “hindsight” in
filing the election in February 2002 because any advantage
that the election would give him as to earlier years would be
outweighed by the possibility that in subsequent years he
would make trading gains, not losses, and that therefore the
election would become disadvantageous. This argument is
without merit. Whether a taxpayer might come to regret his
election in later years does not affect whether the taxpayer
uses “hindsight” at the time he makes a retroactive election.
A taxpayer who makes an election several years after having
continued to trade in the interim still has “some advantage
that was not available on the due date,” Vines, 2006 WL
1280960, at *10, even if in subsequent years the election
becomes disadvantageous. In any event, a taxpayer may
ACAR v. CIR 13485
revoke the election with the consent of the Secretary of the
Treasury. See I.R.C. § 475(f)(3).
[6] Accordingly, we conclude that the district court cor-
rectly determined that Acar was not entitled to a time exten-
sion under § 301.9100-3 as a matter of law because the
undisputed evidence shows he used “hindsight” in requesting
relief and therefore did not act “reasonably and in good faith.”
See Treas. Reg. § 301.9100-3(a), (b)(3)(iii).
IV.
We affirm the district court’s grant of summary judgment
in favor of the government.
AFFIRMED.