T.C. Summary Opinion 2001-132
UNITED STATES TAX COURT
BRENDA T. FARRIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2251-00S. Filed September 4, 2001.
Brenda T. Farris, pro se.
Veena Luthra, for respondent.
POWELL, 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.1 The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
1
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 of $1,873 in petitioner's
1997 Federal income tax. The issue is whether petitioner is
entitled to a deduction for gambling losses. Petitioner resided
in Quinton, Virginia, when the petition in this case was filed.
The facts may be summarized as follows. During 1997,
petitioner played the Virginia State Lottery and won two amounts
($2,500 and $2,700) that were reported to the Internal Revenue
Service. Petitioner is not in the trade or business of gambling
or playing the lottery. On her 1997 return, petitioner did not
report any income from the lottery. Petitioner did not itemize
deductions and claimed the so-called standard deduction for head
of household in the amount of $6,050. In the notice of
deficiency, respondent determined that petitioner had additional
income in the amount reported by the lottery ($5,200).
Petitioner admits that she won the $5,200 and, indeed,
admits that she additionally won as much as $1,000 a month that
was not reported by the lottery, but she did not know the exact
amount of her total winnings for the year. Petitioner did not
report the additional winnings because she believed that, since
they were not reported to the Internal Revenue Service, they were
not taxable.
Discussion
Section 61(a) defines gross income to mean all income from
whatever source derived. Lottery winnings, whether reported or
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not by the lottery operator, are includable in gross income.
Paul v. Commissioner, T.C. Memo. 1992-582. As we understand,
petitioner's position is that she incurred losses from her
gambling activities during 1997, and, when considered with other
itemized deductions she did not claim on her return, the amount
would have been greater than the standard deduction of $6,050
that she claimed. Petitioner claims that she donated to Goodwill
Industries tangible personal property that she estimates had a
fair market value of $1,225 and that she is entitled to a
charitable deduction in that amount. The record shows that
petitioner also paid $653 in State income taxes.
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. Sec. 62(a)(1). If petitioner's gambling activity
constituted a trade or business, her 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, her gambling losses would be deductible as an itemized
deduction in arriving at taxable income on Schedule A, Itemized
Deductions. 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
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the extent of the gains from such transactions.” See also sec.
1.165-10, Income Tax Regs. Petitioner does not claim to be in
the trade or business of gambling, and we are, therefore, faced
with the question whether she is entitled to claim itemized
deductions on a Schedule A.
While we are convinced that petitioner purchased lottery
tickets that did not pay off, there are some obstacles in her
path. First, we have no idea as to the dollar amount of those
tickets. Petitioner appeared at trial with a paper bag full of
tickets; however, she did not know how many losing tickets were
in the bag. She had not counted them, and the Court eschews that
responsibility. We did, however, examine some of the tickets and
there appears to be an unsettling number of tickets from certain
days, even though petitioner testified that she played the
lottery almost daily. It seems as if the tickets had been picked
up on a random basis rather than daily.
Equally important, even if we were to assume that the amount
of losing tickets was as petitioner alleges (between $4,752 shown
in the petition and $6,000 at trial), we are still faced with the
problem that petitioner admits that she won considerably more
money than that which was reported to the Internal Revenue
Service. While respondent did not move to increase the
deficiency, the additional amount of unreported lottery winnings
and the amount contained in the notice of deficiency ($5,200)
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certainly exceeds $1,828 which is the difference between the
standard deduction ($6,050) and the maximum itemized deductions
($7,878) that petitioner could have claimed ($6,000 gambling
losses, $1,225 charitable contribution, and $653 State income
taxes). Accordingly, respondent’s determination is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.