I'm saying he acted within all the same bounds as he would have had to, had it been an IRA, and for the same reasons: retirement.

I understand it's a bad position to be in. But, look at it from a spirit of the law perspective: he was using it as a retirement account. He did not draw from the initial gain to his checking account (just as if it had been a retirement account). I know the solution isn't straightforward, I suppose what I'm looking for is the best way to approach the IRS to negotiate this, because the guy is getting screwed and will be quite destitute if he has to liquidate his account to cover the tax implications of one trade.

Thank you, if a CPA does advise an offer in compromise, and my uncle is willing to be fully transparent showing his brokerage statements, bank account, etc., would they take into account his financial ignorance and the lack of any meaningful gain? His trading history is very straightforward, and the paper trail is not complicated.

Thank you for the response. Allow me to elaborate on my line of thinking: assuming that my uncle can show sufficient hardship (he absolutely can), and the payment he agrees to is small, and the following tax year (2022) he shows an equal and offsetting capital loss of say the same amount ($70,000), he would be eligible for up to a $3,000 credit, correct? Well, say the payment plan is $3,000/year, and the credit is $3,000/year, wouldn't the IRS be interested in just washing his liability?

Also, as far as the income goes, this is only counted as income, it was mechanically identical to someone trading with a retirement account (which granted, he should have been doing). Due to his own ignorance, he didn't have his savings in a retirement account.