2010 revenue proposals include 25% dealer tax hike

The proposals, released earlier this month, were developed with the intention of closing budgetary shortfalls. They stated: "There is no reason to treat dealers in commodities, commodities derivatives dealers, dealers in securities and dealers in equity options differently from dealers in other types of property. Dealers earn their income from their day-to-day dealing activities and should be taxed at ordinary rates."

Under current guidelines, dealers may treat 60% of their gains as capital gains and 40% as ordinary income. If these proposals were enacted, dealers would then have to treat 100% of gains as ordinary income. According to Kurt Baca, Washington, DC-based senior counsel in the tax advisory practice at international law firm Paul Hastings, "this would mean that dealers' blended tax rate would go from around 32% to 39.6% at the highest of the margin, which would clearly affect individuals that are dealing in a partnership situation".

"The proposals would not affect banks acting as dealers, as they are generally required to treat all income as ordinary anyway," said Baca.