T.C. Summary Opinion 2002-120
UNITED STATES TAX COURT
CALVIN E. AND CAROL D. NEYMEYER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12161-00S. Filed September 18, 2002.
Calvin E. and Carol D. Neymeyer, pro se.
Kathleen C. Schlenzig, for respondent.
POWELL, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463.1 The decision to be entered
is not reviewable by any other court, and this opinion should not
be cited as authority.
Respondent determined a deficiency of $1,065 in petitioners'
1998 Federal income tax. The issues are whether petitioner Carol
D. Neymeyer (petitioner) is entitled to deduct gambling losses as
1
Section references are to the Internal Revenue Code in effect
for the year in issue.
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expenses of a trade or business under section 162, or, in the
alternative, under section 165.2 Petitioners resided in Clinton,
Iowa, at the time the petition was filed.
Background
The facts may be summarized as follows. Prior to 1998,
petitioner enjoyed “off and on” or “vacation” gambling in Nevada
with her husband. At that time petitioner was a housewife. In
1998, petitioner decided that she could “make some money”
gambling. She began playing the slot machines at a local
riverboat casino (primarily the Mississippi Bell II) and financed
her playing primarily with cash advances from credit cards. On
two occasions she won sufficient money for the casino to issue
Forms W-2G, Certain Gambling Winnings, to petitioner reporting
winnings of $2,500 and $2,000.3 In September or October 1998,
petitioner “looked at her records” and realized that she was
going into debt. She decided to quit gambling, get a job, and
pay off the accumulated debt.
Petitioners did not report the $4,500 on their joint 1998
Federal income tax return. Petitioners claimed the standard
2
Respondent adjusted the taxable amount of Social Security
benefit that was received and reported. Petitioners have not
challenged that adjustment.
3
It appears that petitioner won an additional $2,000 for which
a Form W-2G was issued. Respondent, however, included only
$4,500 in the notice of deficiency and has not asserted an
increased deficiency.
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deduction for married filing jointly on their 1998 return. Upon
examination, respondent included the $4,500 in petitioners’ gross
income. Petitioners contend that petitioner was in the trade or
business of gambling and that her losses exceeded the amount of
income she realized from gambling.
Discussion
Section 61(a) defines gross income to mean all income from
whatever source derived. Winnings from slot machines are
includable in gross income. See Bauman v. Commissioner, T.C.
Memo. 1993-112. Section 162(a) allows deductions for all
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. The initial
issue here is whether petitioners' gambling activity constituted
a trade or business. If petitioner were engaged in a trade or
business of gambling, losses, to the extent that they would be
deductible under section 165(d), would be deducted in computing
adjusted gross income. See sec. 62. On the other hand, if
petitioner were not in a trade or business of gambling, her
losses would be deductible as an itemized deduction.
To be engaged in a trade or business within the meaning of
section 162(a), 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 and profit.
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). Whether a
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taxpayer is carrying on a trade or business requires an
examination of all the facts in each case. Higgins v.
Commissioner, 312 U.S. 212, 217 (1941).
Petitioner’s gambling activity in 1998 consisted of playing
the slot machines in Iowa on approximately 66 days during the
274-day period from January to September 1998, and taking two
short trips to Nevada where she also played the slot machines.
Prior to commencing the activity, petitioner did not consult with
any professional gamblers or do any research concerning
professional gambling. She did not know whether she was required
to have a professional gambling license. Petitioner claims that
she kept records of her winnings and losses in a notebook; she,
however, destroyed those records when she abandoned the gambling
activity in the fall of 1998. The only records of her activity
are credit card statements showing cash advances at the casinos
that she visited and casino records from the Mississippi Belle
II.
We do not find that petitioner’s activity was continuous or
regular, and, while petitioner certainly desired to win money,
she did not engage in the activity for the primary purpose of
income and profit. Indeed, for example, the destruction of her
records cuts across the suggestion that she considered herself to
be in the trade or business of gambling. Rather, petitioner’s
activity more resembles a diversion than a professional
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engagement. A sporadic activity, hobby, or an amusement
diversion does not qualify as a trade or business. Commissioner
v. Groetzinger, supra at 35. In sum, petitioner was not engaged
in the trade or business of gambling in 1998.
Turning to a wagering loss deduction, we are willing to
assume that petitioner lost more than she won. Section 165(d),
however, provides that “Losses from wagering transactions shall
be allowed only to the extent of the gains from such
transactions.” Petitioners claimed the standard deduction on
their 1998 Federal income tax return. The standard deduction
amount claimed on the return and allowed ($7,950) exceeds the
amount of the gambling losses ($4,500) that would be allowable,
and petitioners have not established that they had other itemized
deductions greater than $3,450, the difference between the amount
allowed and the loss. Accordingly, petitioners are not entitled
to a separate deduction for gambling losses. See Umstead v.
Commissioner, T.C. Memo. 1982-573; Carter v. Commissioner, T.C.
Memo. 1976-23. Respondent’s determination is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.