T.C. Summary Opinion 2005-109
UNITED STATES TAX COURT
JIMMIE L. CLEMONS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20040-03S. Filed August 1, 2005.
Jimmie L. Clemons, pro se.
Jeanne Gramling and Blake W. Ferguson, 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 $1,601 for the taxable year 2001.1
After concessions,2 the issue for decision is whether
petitioner must include in his gross income gambling winnings of
$44,833 for taxable year 2001.3 The amount of petitioner’s
Social Security benefits received during taxable year 2001 that
must be included in his 2001 gross income is a computational
matter and will be resolved by our decision on the unreported
gambling income issue.
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
Flat Rock, North Carolina, on the date the petition was filed in
this case.
1
At trial, respondent conceded that the amount of the
deficiency for taxable year 2001 set forth in the notice of
deficiency was not correct. Instead, respondent claims that the
correct deficiency is $1,046.
2
At trial, respondent conceded that petitioner was entitled
to Schedule A deductions for taxable year 2001 of $44,833 and
$500 for gambling losses and charitable contributions,
respectively.
3
If the $44,833 gambling winnings are included in
petitioner’s gross income, he must also include Social Security
benefits received of $8,690 in his gross income for taxable year
2001 pursuant to sec. 86.
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Petitioner timely filed his Federal income tax return for
the 2001 taxable year. On Form 1040, U.S. Individual Income Tax
Return, for taxable year 2001, petitioner reported capital gain
income of $1,663.13. Petitioner did not report any other income.
Petitioner also claimed a personal exemption and the standard
deduction. Petitioner did not attach a Schedule A, Itemized
Deductions, to his Form 1040.
During taxable year 2001, petitioner was retired.
Petitioner gambled at Harrah’s Cherokee Smokey Mountain Casino
(Cherokee Casino), and during taxable year 2001, petitioner
received gambling winnings of $44,833 from Cherokee Casino.
Both petitioner and respondent received seven Forms W-2G,
Certain Gambling Winnings, for taxable year 2001, all seven of
which were from Cherokee Casino in the amounts of $16,000,
$2,500, $4,000, $4,000, $4,500, $12,583, and $1,250, for a total
of $44,833. Petitioner attached these Forms W-2G to his 2001
Form 1040, but, as previously stated, he did not report the
amounts as gross income. From these Forms W-2G, respondent
determined that petitioner had unreported gambling income of
$44,833 for taxable year 2001.
Accordingly, in the notice of deficiency for taxable year
2001, dated November 3, 2003, respondent determined that
petitioner must include gambling winnings in the amount of
$44,833 in his gross income. Respondent also determined that
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petitioner was entitled to Schedule A itemized miscellaneous
deductions in the amount of $44,523, rather than the standard
deduction, and respondent further determined that petitioner must
include taxable Social Security benefits of $8,690 in his gross
income for taxable year 2001. The taxable Social Security income
was computed at 85 percent of the total amount of $10,244, which
petitioner received as Social Security benefits during taxable
year 2001.
After the issuance of the notice of deficiency, but before
trial, respondent conceded that he failed to allow petitioner a
personal exemption and understated the allowable itemized
miscellaneous deductions in his computation of the deficiency
reflected in the notice of deficiency.
As previously noted, at trial, respondent conceded that
petitioner was entitled to Schedule A itemized miscellaneous
deductions of $45,333, consisting of $44,833 for gambling losses
incurred by petitioner during taxable year 2001 and $500 for
charitable contributions made by petitioner during taxable year
2001. Respondent also conceded, at trial, that the correct
amount of the deficiency for taxable year 2001 was $1,046.
Discussion
As a general rule, the determinations of the Commissioner in
a notice of deficiency are presumed correct, and the taxpayer
bears the burden of proving the Commissioner’s determinations to
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be in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). As one 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. We decide the issue in this case without regard
to the burden of proof. Accordingly, we need not decide whether
the general rule of section 7491(a)(1) is applicable in this
case. See Higbee v. Commissioner, 116 T.C. 438 (2001).
Petitioner contends that his $44,833 gambling winnings need
not be included in his gross income because he had gambling
losses to offset these winnings. Respondent, however, contends
that petitioner must include his gambling winnings in his gross
income and is then entitled to a Schedule A miscellaneous
itemized deduction for his gambling losses.
The present problem seems to be that petitioner steadfastly
rejects or ignores certain basic principles of the Federal income
tax laws. Petitioner wishes to net his winnings and losses and,
on his tax return, report in gross income only the amount of any
net gambling winnings. Petitioner considers as “actual income”
only his capital gain proceeds and any net gambling winnings.
Petitioner is in error.
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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).
Section 62 defines adjusted gross income and allows expenses
of a trade or business and certain employee business expenses to
be deducted from gross income. These deductions are sometimes
referred to as deductions “above the line,” meaning simply that
they are deducted from gross income to arrive at “adjusted gross
income.” Gamblers who are engaged in a trade or business of
gambling may be able to deduct their gambling losses above the
line; indeed, courts have based their decisions in some cases on
the proposition that such a professional gambler may net losses
against winnings for purposes of determining what is includable
in gross income. See Winkler v. United States, 230 F.2d 766 (1st
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Cir. 1956); Green v. Commissioner, 66 T.C. 538 (1976). This is
not the present case.
In the case of a taxpayer not engaged in the trade or
business of gambling, gambling losses are allowable as a
miscellaneous itemized deduction, but only to the extent of gains
from such transactions. See sec. 165(d); McClanahan v. United
States, supra; Winkler v. United States, supra; Gajewski v.
Commissioner, 84 T.C. 980 (1985); Lutz v. Commissioner, T.C.
Memo. 2002-89; see also Stein v. Commissioner, T.C. Memo. 1984-
403; Umstead v. Commissioner, T.C. Memo. 1982-573.
The parties agree that, during taxable year 2001, petitioner
received gambling winnings of $44,833 at the Cherokee Casino.
The parties further agree that petitioner incurred gambling
losses, during taxable year 2001, in excess of $44,833.
Petitioner did not report the aforesaid gambling winnings as
gross income on his 2001 Federal income tax return. Instead,
petitioner merely offset his gambling income with his sustained
gambling losses and did not report either of these amounts on his
2001 Federal income tax return.
Petitioner presented no evidence to show that he was a
professional gambler, nor did he contend that he was a
professional gambler. On the basis of the evidence in the
record, we conclude that petitioner was a recreational gambler
and not a professional gambler. Therefore, the gambling losses
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incurred by petitioner during taxable year 2001 are allowable
only as an miscellaneous itemized deduction on Schedule A, to the
extent of gains from gambling. See sec. 165(d); sec. 1.165-10,
Income Tax Regs. Thus, petitioner must include his gambling
winnings in his adjusted gross income and is entitled only then
to a Schedule A miscellaneous itemized deduction, to the extent
of his gains from gambling, for his gambling losses. See sec.
165(d); sec. 1.165-10, Income Tax Regs.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect respondent’s concessions and our resolution of
the disputed matters,
Decision will be entered
under Rule 155.