The rules surrounding trader tax status are far too vague. They’re primarily based on case law, but current case law is old and outdated.

If the IRS isn’t willing to give a large tax refund to a trader, it attacks either their trader tax status or their election of MTM. If a trader makes one misstep along the way, the IRS will pounce on it.

An appeals process could work, but sometimes the IRS will only agree to split the difference with you. The last resort is tax court, which can be very expensive. Most traders who know trader tax rules and follow them properly have few problems with the IRS.