T.C. Summary Opinion 2001-92
UNITED STATES TAX COURT
PAUL S. LEBLANC, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13599-99S. Filed June 22, 2001.
Paul S. LeBlanc, pro se.
Linda A. Neal, for respondent.
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year in issue.
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Respondent determined a deficiency in petitioner’s Federal
income tax of $504 for the taxable year 1996.
The issue for decision is whether requiring petitioner to
include unreported gambling winnings in income violates the
constitutional right to equal protection.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Gretna, Louisiana, on the date the petition was filed in this
case.
Petitioner filed a joint Federal income tax return for 1996
with his now deceased wife, Jacquelyn S. LeBlanc. Petitioner’s
wife received a Form W-2G, Statement for Recipient of Certain
Gambling Winnings, reflecting 1996 slot machine winnings of
$1,773.61. However, no income from gambling was reported on
their return. In the statutory notice of deficiency, respondent
determined that petitioner had unreported gambling income of
$1,773.
Gross income generally includes income from whatever source
derived, including gambling winnings. See sec. 61(a); Umstead v.
Commissioner, T.C. Memo. 1982-573. Gambling losses generally are
allowed to the extent of the gambling winnings for the taxable
year. See sec. 165(a), (d). A nonprofessional gambler may claim
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such losses as itemized deductions if he elects to forgo the
standard deduction. See sec. 63.
Petitioner admits that his wife received slot machine
winnings in the amount of $1,773 in 1996, that this amount was
not reported on their tax return, and that this amount is income
subject to the Federal income tax. Petitioner argues that the
taxation of the gambling winnings in his case is “unequal
treatment under the law,” in violation of the “equal protection
as well as equal treatment” afforded by the United States
Constitution. Petitioner argues that certain taxpayers escape
taxation on their gambling winnings because casinos do not issue
informational returns for all taxpayers who receive such
winnings.
Although the Equal Protection Clause in the Fourteenth
Amendment limits the powers of the States, there is no comparable
clause explicitly applicable to Federal legislation. However,
the Due Process Clause of the Fifth Amendment has been construed
as imposing an equal protection requirement in respect of
classification to the extent that “discrimination [resulting from
such classification] may be so unjustifiable as to be violative
of due process.” Bolling v. Sharpe, 347 U.S. 497, 499 (1954)
(fn. ref. omitted).
In evaluating whether a statutory classification violates
equal protection, we generally apply a rational basis standard.
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See Regan v. Taxation With Representation, 461 U.S. 540, 547
(1983). We apply a higher standard of review only if it is found
that the statute (1) impermissibly interferes with the exercise
of a fundamental right, such as freedom of speech, or (2) employs
a suspect classification, such as race. See, e.g., id.; Harris
v. McRae, 448 U.S. 297, 322 (1980). Neither of these exceptions
applies in this case. Under the rational basis standard, a
challenged classification is valid if rationally related to a
legitimate governmental interest. See City of Cleburne v.
Cleburne Living Ctr., Inc., 473 U.S. 432, 440 (1985); City of New
Orleans v. Dukes, 427 U.S. 297, 303 (1976). Legislatures have
especially broad latitude in creating classification and
distinctions in tax statutes. See Regan v. Taxation With
Representation, supra at 547.
The informational return which petitioner’s wife received in
this case was required by section 6041 and the accompanying
regulations. As a general rule, a person engaged in a trade or
business who makes a payment to an individual in excess of $600
must provide an informational return to the Secretary of the
Treasury (or his delegate) and to the individual. See sec.
6041(a), (d). A person engaged in a trade or business who pays
winnings to an individual of $1,200 or more from a bingo game or
slot machine play, or of $1,500 or more from a keno game, must
provide such an informational return. See sec. 7.6041-1(a),
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Temporary Income Tax Regs., 42 Fed. Reg. 1471 (Jan. 7, 1977).
This latter return must be made on a Form W-2G. See sec. 7.6041-
1(c), Temporary Income Tax Regs., supra; see also sec.
31.3402(q)-1(f), Employment Tax Regs. (Form W-2G payer reporting
requirements for purposes of withholding). In determining the
amount won from such games, the amount wagered is deducted from
the winnings in a keno game, but is not deducted in a bingo game
or slot machine play. See sec. 7.6041-1(b)(1), (2), Temporary
Income Tax Regs., supra. Winnings from more than one game are
not aggregated. See sec. 7.6041-1(b)(5), Temporary Income Tax
Regs.
Legislation enacted in 1917 added informational reporting
requirements to the Internal Revenue Code similar to the current
provisions under section 6041. See Act of October 3, 1917, ch.
63, tit. XII, sec. 1211, 40 Stat. 300. The Senate report
accompanying this legislation stated:
That the provisions of the law requiring withholding at
the source of the tax due on profits or incomes of
resident taxable persons be repealed and instead there
be substituted “information at the source,” where the
amount of income received in any taxable year and paid
over to the taxable person exceeds $800 for any taxable
year. * * * The proposed amendment is conducive to a
more effective administration of the law in that it
will enable the Government to locate more effectively
all individuals subject to the income tax and to
determine more accurately their tax liability. This is
of prime importance from a viewpoint of collections.
In addition to this very important consideration, the
changes will result in the saving of annoyance and
expense to taxpayers and withholding agents in
lessening of expense to the Government, and in
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simplifying administration, and in increased
effectiveness * * *
It is the Treasury Department’s judgment, based
upon close observation and study of the practical
workings of the withholding feature of the income-tax
law as well as of the general requirements of
administration, that information at the source is a
foundation upon which the administrative structure must
be built if the income-tax law is to be rendered most
effective and if due regard is to be paid to economy
and simplicity of administration and to the imposition
of no greater burden and expense upon taxpayers than is
necessary for effective administration. [S. Rept. 103,
65th Cong., 1st Sess. (1917), 1939-1 C.B. (Part 2) 56,
67-68.]
We find petitioner’s argument to be without merit. There is
no provision in the Internal Revenue Code which relieves a
taxpayer from liability for the income tax on gambling winnings
if the winnings are not reported by the payer. Thus, petitioner
essentially is arguing that he has not been afforded equal
protection because those taxpayers whose winnings were not
reported on informational returns have an easier time evading the
Federal tax laws. The statutory requirements for informational
returns classifies individuals according to the amount of
gambling winnings they pay to others. These classification
requirements are rationally related to the legitimate
governmental interest of balancing the need for reporting
requirements to ensure compliance with the tax laws and the need
to avoid imposing excessive burdens on covered individuals.
Requiring a casino to report every dollar won from every slot
machine would undoubtedly be such a burden.
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An aspect of petitioner’s argument apparently is that the
casino was not complying with the law by not issuing
informational returns when required. Petitioner has provided no
evidence supporting this assertion, and even if he had it is
unclear how such noncompliance by the casino would bear on an
equal protection claim by petitioner.
We hold that requiring petitioner to include unreported
gambling winnings in income does not violate the constitutional
right to equal protection.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.