T.C. Memo. 2004-144
UNITED STATES TAX COURT
LILLIE M. PETTY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1984-03. Filed June 17, 2004.
Lillie M. Petty, pro se.
Thomas D. Yang, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: Respondent determined a
deficiency of $1,755 in petitioner’s 2000 Federal income tax.
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue.
This Court must decide: (1) Whether petitioner had
unreported gambling income, and (2) whether the inclusion of such
income reduced petitioner’s earned income credit.
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Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Chicago, Illinois, at the time
she filed her petition.
Section 7491(a) does not apply because this case involves
legal issues.
On Form 1040, U.S. Individual Tax Return, for taxable year
2000, petitioner reported $11,835 in wage income. Petitioner did
not report any other income. Petitioner also claimed head of
household filing status, two dependency exemptions, and the
standard deduction. Petitioner claimed the earned income credit
(EIC) in the amount of $3,888.
Respondent received five Forms W-2G, Certain Gambling
Winnings, for taxable year 2000, four from Hollywood Casino
Aurora in the amounts of $2,500, $2,000, $1,800, and $1,440,
respectively, and one from Showboat Marina Casino Partnership in
the amount of $1,440, for a total of $9,180. From these Forms
W-2G, respondent determined that petitioner had unreported
gambling income of $9,180 for taxable year 2000. Accordingly,
respondent increased petitioner’s adjusted gross income to
$21,015 and decreased petitioner’s EIC by $1,755.
Section 61(a) provides that gross income includes all income
from whatever source derived, unless excludable by a specific
provision of the Code. No specific code section excludes
gambling winnings from gross income. Section 165(d) allows
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gambling losses but only to the extent of gambling winnings.
Petitioner stipulated that she received gambling winnings in
the amount of $9,180 during taxable year 2000. In the notice of
deficiency, respondent allowed petitioner a deduction for
itemized deductions, including gambling losses equal to her
gambling winnings.
We find that the unreported $9,180 of gambling winnings is
includable in petitioner’s adjusted gross income for the taxable
year 2000. As a result, petitioner’s adjusted gross income was
properly increased from $11,835 to $21,015. There is no argument
or evidence from petitioner that she was in the trade or business
of gambling. Thus her gambling losses are deductible only as
itemized deductions, not from gross income, in arriving at
adjusted gross income. Her gambling winnings therefore result in
a dollar-for-dollar increase to her adjusted gross income.
Torpie v. Commissioner, T.C. Memo. 2000-168.
Section 32(a)(1) allows an earned income tax credit to
eligible individuals. Section 32(a)(2) provides that the
allowable credit shall be phased out if “the modified adjusted
gross income (or, if greater, the earned income) of the taxpayer
for the taxable year” exceeds a prescribed amount. Section
32(c)(5) defines modified adjusted gross income as “adjusted
gross income determined without regard to” adjustments not
relevant here. There is no provision in section 32 that excludes
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gambling income from modified adjusted gross income or allows the
deduction of gambling losses in arriving at modified adjusted
gross income.
Unfortunately for petitioner, the EIC is based upon modified
adjusted gross income as defined for section 32. We have
verified that respondent’s computation of the earned income
credit is correct based on the inclusion of petitioner’s gambling
winnings as part of her modified adjusted gross income. We
conclude that the increase in petitioner’s modified adjusted
gross income decreased her EIC and resulted in the deficiency in
issue. We have no choice but to sustain respondent’s
determination.
Decision will be entered
for respondent.