Missed the Mark-to-Market Election Deadline: The New-Entity Fix.

A software engineer quits a W-2 job in February to trade full time. By August the realized loss is $200,000, and the tax software allows $3,000 of it against this year's income. The other $197,000 becomes a carryforward against capital gains that may never arrive. Then comes the question about mark-to-market, and the answer that the deadline was April 15. If you missed the mark-to-market election deadline for 2026, the IRS is not going to hand it back. One move is left, it runs through a new entity, and it has to be finished before the year ends.

Rev. Proc. 99-17 is the exclusive procedure for a trader in securities to elect mark-to-market, and section 5.03(1) sets the timing: no later than the due date, without regard to any extension, of the original return for the taxable year immediately preceding the election year, attached to that return or to the extension request for it. The 2026 election therefore rode on the 2025 return and was due April 15, 2026. Extending 2025 did not move it. The rule wrote the extension out in advance.

The relief request traders file after a bad year almost never works. The deadline sits in a revenue procedure rather than the Code, so §9100 relief is technically available, and the IRS has denied it in a steady line of private letter rulings, because Treas. Reg. §301.9100-3 refuses relief to a taxpayer using hindsight. Litigating it is no better. In Poppe v. Commissioner, T.C. Memo. 2015-205, the Tax Court accepted that the taxpayer was a trader, roughly 60 trades a month, then denied §475 treatment anyway because no timely election could be proven. Qualifying and electing are separate questions, and only one of them has a date attached.

Section 5.03(2) covers a taxpayer that was not required to file a return for the year before the election year. It places a statement in its own books and records no later than 2 months and 15 days after the first day of the election year, then attaches a copy to its first return. Section 5.04 sets the contents: describe the election, state the first taxable year it is effective for, and identify the trade or business it covers. Three sentences, signed and dated.

A newly formed entity is a new taxpayer, and that is the whole mechanism. Form a partnership or an S corporation, let its first tax year begin the day it starts business, and the clock restarts on that day. No Form 3115 that first year either: the entity is adopting a method of accounting rather than changing one, so there is no §481(a) adjustment to spread.

The trap is an entity that is not a separate taxpayer. A single-member LLC with no corporate election is disregarded under Treas. Reg. §301.7701-2, so the taxpayer is still you, and you filed a 2025 return. No new-taxpayer window. It takes two members filing a Form 1065, or a timely S election on Form 2553. In a community property state, Rev. Proc. 2002-69 lets an LLC owned solely by spouses be treated as disregarded, and partnership treatment comes from filing a partnership return for the first year. That matters in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Fund it with cash rather than contributing appreciated positions, which can trigger gain under §721(b).

Under §475(f), securities held in the trading business are treated as sold at fair market value on the last business day of the year, and the gains and losses are ordinary. Ordinary is the entire prize. The §1211(b) cap of $3,000 a year, $1,500 if married filing separately, does not reach an ordinary loss, and neither does the wash sale rule of §1091, the same rule that does not currently apply to crypto for an unrelated reason. IRS Topic No. 429 states both and adds that trading gains are not subject to self-employment tax. Marked positions go on Form 4797, and Treas. Reg. §1.469-1T(e)(6) keeps trading out of the passive activity rules, so the loss reaches wages directly.

• –The entity has to qualify as a trader on its own facts. In Endicott v. Commissioner, T.C. Memo. 2013-199, the taxpayer placed 204, 303, and 1,543 trades over three years and still lost, because the trading fell on only 75, 99, and 112 days and the average holding period ran about 35 days. Volume without daily continuity does not get there.
• –Only the entity's trading is marked. Everything traded personally through September keeps its capital character, which is why the example still carries $43,000 forward.
• –Investment positions have to be identified. Under §475(f)(1)(B), a security not held in connection with the trading business escapes the mark only if it is clearly identified in the records before the close of the day it was acquired. Simpler: keep long-term holdings out of the entity.
• –Large ordinary losses still meet §461(l), which caps 2026 business losses at $512,000 on a joint return and turns the excess into an NOL carryforward usable against no more than 80% of later income. The 2026 excess business loss numbers carry the rest of that math.

A fifth catch is new. Getting out of §475 used to be a routine automatic method change. Rev. Proc. 2025-23, effective for Forms 3115 filed on or after June 9, 2025, removed the eligibility waivers that made the round trip easy, and its section 24 now closes the automatic procedures both to a taxpayer revoking within five years of electing and to one re-electing within five years of a revocation. Outside that route you are asking the Commissioner for consent on a non-automatic Form 3115 with a user fee. Treat this as a five-year decision.