T.C. Summary Opinion 2005-98
UNITED STATES TAX COURT
BILL REMOS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8398-03S. Filed July 21, 2005.
Bill Remos, pro se.
Laurie A. Nasky, for respondent.
GOLDBERG, 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, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s Federal
income tax of $14,339 for the taxable year 1999.
The issues for decision are: (1) Whether petitioner
received and failed to report gambling income in the amount of
$50,000 in taxable year 1999; and (2) in the event petitioner had
gambling income in the amount of $50,000, whether petitioner had
gambling losses in taxable year 1999 to offset any of this
income.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Chicago, Illinois, on the date the petition was filed in this
case.
Petitioner timely filed his Federal income tax return
electronically for the 1999 taxable year. On Form 1040, U.S.
Individual Income Tax Return, for taxable year 1999, petitioner
reported $32,412 in wage income. Petitioner did not report any
other income.
During tax year 1999, petitioner was employed full time as a
“delivery driver” by Coca-Cola. Petitioner gambled at two
casinos during taxable year 1999: the Grand Victoria Casino and
Hollywood Casino-Aurora, Inc. (Hollywood Casino). During taxable
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year 1999, petitioner received gambling winnings of $50,000 from
a game of blackjack he played at the Grand Victoria Casino.
Respondent received a Form W-2G, Certain Gambling Winnings,
for taxable year 1999 from Grand Victoria Casino reporting
gambling winnings paid to petitioner in the amount of $50,000.
From this Form W-2G, respondent determined that petitioner had
unreported income of $50,000 for taxable year 1999. Accordingly,
respondent issued petitioner a notice of deficiency for taxable
year 1999, in which respondent determined that petitioner had
unreported income of $50,000 and that he was liable for a tax
deficiency in the amount of $14,339.
At trial, petitioner claimed that he had documents and other
evidence to show that he suffered unreported gambling losses
equal to his gambling winnings. However, he did not possess this
evidence at the time of trial. The Court left the record open
and gave petitioner 30 days to present these documents and other
support to respondent. Petitioner did not avail himself of the
opportunity to submit this evidence, and on January 13, 2005, the
record in this case was closed.
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct, and the taxpayer bears
the burden of showing that the determination is in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). As one
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exception to this rule, section 7491(a) places upon the
Commissioner the burden of proof with respect to any factual
issue relating to liability for tax if the taxpayer maintained
adequate records, satisfied the substantiation requirements,
cooperated with the Commissioner, and introduced during the Court
proceeding credible evidence with respect to the factual issue.
Although neither party alleges the applicability of section
7491(a), we conclude that the burden of proof has not shifted to
respondent with respect to either the unreported income or the
gambling loss deductions. Therefore, petitioner bears the burden
of showing that he correctly reported his gross income for
taxable year 1999, and, in the event he had unreported gambling
income, petitioner bears the burden of showing that he is
entitled to gambling loss deductions to offset that income.
1. Unreported Income
As stated previously, respondent determined that petitioner
failed to report gambling income in tax year 1999 of $50,000.
However, petitioner argues that the moneys won gambling were not
income to him because they were won at the blackjack table,1 and
the “pit boss” of the Grand Victoria Casino said they were not
taxable.
1
Petitioner testified, at trial, that the Grand Victoria
Casino’s “pit boss” told him that winnings received on a gambling
table were not gross income, but winnings received from slot
machine gambling were gross income.
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Section 61(a) defines gross income as “all income from
whatever source derived,” including gambling, unless otherwise
provided. McClanahan v. United States, 292 F.2d 630, 631-632
(5th Cir. 1961). The Supreme Court has consistently given this
definition of gross income a liberal construction “in recognition
of the intention of Congress to tax all gains except those
specifically exempted.” Commissioner v. Glenshaw Glass Co., 348
U.S. 426, 430 (1955); see also Roemer v. Commissioner, 716 F.2d
693, 696 (9th Cir. 1983) (all realized accessions to wealth are
presumed taxable income, unless the taxpayer can demonstrate that
an acquisition is specifically exempted from taxation), revg. 79
T.C. 398 (1982).
Petitioner stipulated and admitted at trial that during
taxable year 1999, he received gambling winnings of $50,000 at
the Grand Victoria Casino. Petitioner did not report the
aforesaid winnings on his 1999 Federal income tax return.
Petitioner’s reliance on the advice of the Grand Victoria
Casino’s pit boss is misplaced. This Court has repeatedly held
that gambling winnings are includable in the taxpayer’s gross
income for the taxable year in which the winnings were received.
See Petty v. Commissioner, T.C. Memo. 2004-144; see also Lutz v.
Commissioner, T.C. Memo. 2002-89; Sadlier v. Commissioner, T.C.
Memo. 1997-45. Therefore, respondent’s determination as to
petitioner’s unreported income is sustained.
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2. Gambling Loss Deductions
In his petition to this Court, petitioner implies that he
had gambling loss deductions that would offset any gambling
income he received during taxable year 1999. Respondent contends
that petitioner has not substantiated any such deductions.
Deductions are a matter of legislative grace and are allowed
only as specifically provided by statute, and petitioner bears
the burden of proving that he is entitled to the claimed
deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). This includes the burden of substantiation. Hradesky v.
Commissioner, 65 T.C. 87, 89-90 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976).
Section 6001 and the regulations promulgated thereunder
require taxpayers to maintain records sufficient to permit
verification of income and expenses. As a general rule, if the
trial record provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
substantiate adequately the precise amount of the deduction to
which he or she is otherwise entitled, the Court may estimate the
amount of the deductible expense, bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
expense is of his own making, and allow the deduction to that
extent. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
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However, in order for the Court to estimate the amount of an
expense, the Court must have some basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Without such a basis, any allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560-
561 (5th Cir. 1957). With these well-established propositions in
mind, we must determine whether petitioner has satisfied his
burden of proving that he is entitled to the claimed gambling
loss deductions mentioned above.
In order to establish entitlement to a deduction for
wagering losses in this Court, the taxpayer must prove the losses
sustained during the taxable year. Mack v. Commissioner, 429
F.2d 182 (6th Cir. 1970), affg. T.C. Memo. 1969-26; Stein v.
Commissioner, 322 F.2d 78 (5th Cir. 1963), affg. T.C. Memo. 1962-
19. The taxpayer must also prove that the amount of wagering
losses claimed as a deduction exceeds the amount of the
taxpayer’s gains from wagering transactions. Sec. 165(d).
Implicitly, this requires the taxpayer to prove both the amount
of losses and the amount of winnings. Schooler v. Commissioner,
68 T.C. 867, 869 (1977); Donovan v. Commissioner, T.C. Memo.
1965-247, affd. per curiam 359 F.2d 64 (1st Cir. 1966).
Otherwise, there would be no way of knowing whether the sum of
the losses deducted on the return is greater or less than the
taxpayer’s winnings. Schooler v. Commissioner, supra at 869.
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Petitioner did not maintain a diary or any other
contemporaneous record reflecting either his winnings or his
losses from gambling during the 1999 taxable year. At trial,
petitioner did not testify to any specific gambling losses he
incurred during taxable year 1999. However, in an attempt to
substantiate his gambling losses, petitioner offered into
evidence a letter from Hollywood Casino addressed to petitioner.
Such letter was received into evidence by the Court. The letter
from Hollywood Casino stated, in pertinent part:
We are in receipt of your request for your gaming
history at Hollywood Casino - Aurora, Inc. (“Hollywood”) for
the calendar year 1999.
Kindly note, that our system records a total win or
loss amount on slot gaming activity during your trip(s)
based on information captured with the use of a player-
tracking card. Accordingly, slot play without the insertion
of your player-tracking card cannot be captured.
* * * * * * *
The records provided are based on “rating information”
and are not accounting records. Stated differently,
Hollywood either employs raters, whose responsibility it is
to walk the Casino floor and record the amount placed into
play by a patron as well as the time spent by such patron
playing a particular game, or uses electronically-computed
rating entries. Such information is then input into the
Hollywood’s computer system which, by means of certain
proprietary statistical analyses which account for the type
of game, amount wagered, time of play, and statistical
advantage of the game played, generates these rating
reports. Therefore, based on such analyses and in order to
represent the same as records of gaming wins or losses, it
must be assumed that (i) the rating information placed into
the computer system is accurate and (ii) except as otherwise
noted, no other extraordinary winnings were held.
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Based on such analyses and assumptions, the Hollywood’s
computer-generated records reflect that, after calculating
your Coin-in, Coin-out, all Jackpots won and/or your rated
Table play, for the calendar year 1999, you experienced an
aggregate $6,600.00 gaming loss. * * *
Further, petitioner offered into evidence, to substantiate
his gambling loss deductions, a computer printout, which he
claims was issued by Grand Victoria Casino, of numerical
transactions which show values for “money in”, “money out”, and
“net proceeds”. Said computer printout was received into
evidence by the Court. Petitioner could not explain how the
information on the computer printout was compiled or its specific
implications. Also, the computer printout did not contain
petitioner’s name; it did not contain the name of any casino; and
petitioner did not substantiate that the computer printout
displayed transactions of his own personal account.
As previously stated, at trial, petitioner claimed that he
had additional documents and other evidence to support his
claimed gambling loss deductions. However, he did not possess
this evidence at the time of trial. The Court left the record
open and gave petitioner 30 days to present these documents and
other support to respondent. Petitioner did not avail himself of
the opportunity to submit this evidence, and on January 13, 2005,
the record in this case was closed.
We have taken into consideration petitioner’s testimony and
the documents offered into evidence by petitioner. Although the
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Court acknowledges that petitioner most likely had some gambling
losses during the year, we are unable to determine (either with
specificity or by estimation) the amount of those losses on the
basis of the record at hand. We conclude that petitioner has
failed to satisfy his burden of proof on this issue. See Mayer
v. Commissioner, T.C. Memo. 2000-295, affd. 29 Fed. Appx. 706 (2d
Cir. 2002); see also Zielonka v. Commissioner, T.C. Memo. 1997-
81. Therefore, we are unable to allow any deduction for gambling
losses.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.