T.C. Memo. 2000-168
UNITED STATES TAX COURT
ROGER JOHN TORPIE, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 858-99. Filed May 22, 2000.
Roger John Torpie, Jr., pro se.
Richard J. Wright, for respondent.
MEMORANDUM OPINION
POWELL, Special Trial Judge: Respondent determined a
deficiency in petitioner's 1996 Federal income tax of $238. The
issue is whether petitioner is entitled to a gambling loss
deduction. Petitioner resided in Dallas, Texas, when the
petition in this case was filed.
The facts are not in dispute and may be summarized as
follows. During 1996, petitioner won $858 in a lottery that he
reported on his 1996 Federal income tax return. While the exact
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cumulative amount petitioner lost in gambling during 1996 is
unclear, the parties seem to agree that he lost more than he won.
On his 1996 return petitioner deducted $858 in determining
his adjusted gross income. Petitioner did not itemize deductions
and claimed the so-called standard deduction. In the notice of
deficiency, respondent determined that the $858 deduction was not
allowable.
Discussion
Section 61(a)1 defines gross income to mean all income from
whatever source derived. Lottery winnings are includable in
gross income. See Paul v. Commissioner, T.C. Memo. 1992-582.
Petitioner admits that he won $858. As we understand,
petitioner's position is that he sustained a net loss from his
gambling activities during 1996, and, therefore, he should be
able to deduct the losses that he incurred in determining the
amount of gambling income that he received.
Respondent argues that, even if the Court finds that
petitioner sustained gambling losses during 1996, which we do,
the deductible amount of such gambling losses would be limited to
the amount of the gambling winnings reported. Respondent further
argues that, even if petitioner were entitled to a Schedule A
itemized deduction for any such gambling loss, the claimed
1
Unless otherwise indicated, section references are to
the Internal Revenue Code in effect for the year in issue.
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standard deduction for 1996 of $3,000, see sec. 63(c)(2)(C),
would exceed the maximum gambling loss deduction.
In the case of an individual, section 62(a) defines adjusted
gross income as gross income less certain deductions, including
deductions attributable to a trade or business carried on by the
taxpayer. See sec. 62(a)(1). If petitioner's gambling activity
constituted a trade or business, his gambling losses would be
deductible from gross income in arriving at adjusted gross income
on Schedule C, Profit or Loss from Business. See id. If
petitioner's gambling activity did not constitute a trade or
business, his gambling losses would be deductible as an itemized
deduction in arriving at taxable income on Schedule A, Itemized
Deductions. See sec. 63(a). But, regardless whether or not the
activity constituted a trade or business, section 165(d) provides
that “Losses from wagering transactions shall be allowed only to
the extent of the gains from such transactions.” See also sec.
1.165-10, Income Tax Regs.
Petitioner has not argued, nor do we find, that he was in a
trade or business of gambling. To be engaged in a trade or
business, an individual must be involved in the activity with
continuity and regularity, and the primary purpose for engaging
in the activity must be for income or profit. See Commissioner
v. Groetzinger, 480 U.S. 23, 35 (1987). “A sporadic activity, a
hobby, or an amusement diversion does not qualify [as a trade or
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business].” Id. at 35. Petitioner's gambling activities fall in
the latter categories. His alleged gambling losses, therefore,
are deductible only as a Schedule A itemized deduction. See
Heidelberg v. Commissioner, T.C. Memo. 1977-133.
In order to claim any Schedule A itemized deduction,
petitioner would have to forgo the standard deduction of $3,000.
See sec. 63(a) and (b). Since he claims no itemized deductions,
other than the gambling loss deduction, petitioner’s total amount
of itemized deductions (consisting solely of the gambling loss
deduction) is limited by section 165(d) to the amount of the
gambling income ($858). Under the statutory provisions,
petitioner’s most favorable tax treatment in this case is,
therefore, the one determined by respondent in the statutory
notice of deficiency.
Petitioner contends that Congress could not have intended
this result because it discriminates against low-income taxpayers
who rarely have sufficient deductions to itemize. This result,
however, is directed by the literal language of the statutes
involved as enacted by Congress, and we are bound by that
language. The request for relief that petitioner seeks must be
addressed to Congress and not to the courts.
To reflect the foregoing,
Decision will be entered
for respondent.