T.C. Memo. 2009-67
UNITED STATES TAX COURT
JAYNE A. BRISENO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17363-06. Filed March 26, 2009.
Jayne A. Briseno, pro se.
Michael S. Hensley, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined deficiencies and
additions to tax with respect to petitioner’s 1999, 2001, and
2002 (years at issue) Federal income taxes as follows:1
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue. Rule
references are to the Tax Court Rules of Practice and Procedure.
(continued...)
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Additions to Tax
Sec. Sec. Sec.
Year Deficiency 6651(a)(1) 6651(a)(2) 6654
1999 $2,782 $626 $70 $135
2001 61,249 13,822 1,505 2,455
2002 170,136 38,281 4,253 5,685
After concessions,2 the issues for decision are: (1)
Whether petitioner received gambling income and is entitled to
deduct gambling losses; (2) whether petitioner is entitled to
dependency exemption deductions for her sons, head of household
filing status, and child tax credits; (3) whether petitioner is
entitled to itemized deductions including deductions for home
mortgage interest and real estate taxes; and (4) whether
petitioner is liable for additions to tax under sections
6651(a)(1) and 6654.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits attached thereto are
incorporated herein by this reference. At the time she filed her
petition, petitioner resided in California.
1
(...continued)
Amounts are rounded to the nearest dollar.
2
Petitioner conceded that she received $100 of interest
income in 1999 and $29,500 of capital gains in 2001. Respondent
conceded that petitioner is not a professional gambler and
therefore is not liable for self-employment tax. Respondent also
conceded that petitioner is not liable for the additions to tax
under sec. 6651(a)(2).
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Petitioner is a recreational gambler who played slot
machines at various casinos during the years at issue. Those
casinos issued her Forms W-2G, Certain Gambling Winnings,
reporting that she received winnings of $13,240 in 1999, $139,714
in 2001, and $459,397 in 2002. During at least a portion of the
years at issue she also was employed selling fasteners such as
nuts and bolts.3
Petitioner is the mother of two children: Dustin, who was
born in 1980 and Johnny, who was born in 1985. During the years
at issue Johnny lived with petitioner, and she was his primary
source of support. Dustin also lived with petitioner except when
he was away at college. Nevertheless, she was his primary source
of support.
Petitioner did not file Federal income tax returns for 1999
through 2002, nor did she make estimated tax payments or have any
income tax withheld during the years at issue. Shortly before
trial petitioner prepared Forms 1040, U.S. Individual Income Tax
Return, for the years at issue, but they have not been filed with
respondent.
Each of the returns states that petitioner received gambling
income in amounts equal to or slightly less than the amounts
3
The notices of deficiency do not include any income from
petitioner’s employment, and respondent has not otherwise alleged
that petitioner received employment income.
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reported on the Forms W-2G.4 Her 1999 return includes gambling
losses equal to her reported winnings. Her 2001 and 2002 returns
include gambling losses of $126,924 and $413,279, respectively,
indicating that petitioner’s net gambling income in those years
was at least $12,790 and $45,218, respectively. Petitioner’s
returns did not include any additional income except a $29,500
capital gain in 2001.
After receiving notices of deficiency for the years at
issue, petitioner filed a timely petition with this Court and
trial was held in San Diego, California.
OPINION
A. Gambling Winnings and Losses
In cases of unreported income, the Court of Appeals for the
Ninth Circuit, to which an appeal in this case would lie,
requires that the Commissioner provide a minimal evidentiary
foundation connecting the taxpayer with the unreported income
before the presumption of correctness attaches to the
Commissioner’s determination. See Hardy v. Commissioner, 181
F.3d 1002, 1004 (9th Cir. 1999), affg. T.C. Memo. 1997-97;
Weimerskirch v. Commissioner, 596 F.2d 358, 360-361 (9th Cir.
1979), revg. 67 T.C. 672 (1977). Once the Commissioner has met
this initial burden, the taxpayer must establish by a
4
Petitioner’s 2002 return states that she received $458,497
of gambling winnings in 2002, $900 less than the total reported
on the Forms W-2G. Petitioner offered no explanation for the
difference.
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preponderance of the evidence that the Commissioner’s
determination is arbitrary or erroneous. See Hardy v.
Commissioner, supra at 1004.
Gross income includes all income from whatever source
derived, including gambling. See sec. 61; McClanahan v. United
States, 292 F.2d 630, 631-632 (5th Cir. 1961). In the case of a
taxpayer not engaged in the trade or business of gambling,
gambling losses are allowable as an itemized deduction, but only
to the extent of gains from such transactions. Sec. 165(d). To
establish entitlement to a deduction for gambling losses 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.
Respondent provided Forms W-2G showing that petitioner
received slot machine winnings in the amounts determined in the
notice of deficiency. Furthermore, petitioner’s returns prepared
before trial serve as an admission that petitioner received the
winnings. Accordingly, we conclude that petitioner received
gambling winnings in the amounts determined by respondent.
Although petitioner alleged that she maintained
contemporaneous gambling logs, she was unable to produce any
evidence of a log or any other contemporaneous evidence of her
winnings and losses. Accordingly, we conclude that petitioner
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has failed to satisfy her burden of substantiating her gambling
losses.
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, and
allow the deduction to that extent. Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85
T.C. 731, 742-743 (1985); sec. 1.274-5T(a), Temporary Income Tax
Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). In these instances,
the Court may make as close an approximation of the allowable
expense as it can, bearing heavily against the taxpayer whose
inexactitude is of his or her own making. Cohan v. Commissioner,
supra at 544.
Petitioner received her gambling winnings from playing slot
machines. During the years at issue she won a few jackpots
larger than $10,000, but most of her winnings were of amounts
between $1,000 and $4,000. In other words, she did not receive
her winnings in one, or even a few, large jackpots. She gambled
frequently and when she won she would often “reinvest” those
winnings in the slot machines, losing much or all of what she had
won. We regard it as a virtual certainty that petitioner,
playing a game of chance frequently over the course of several
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years, placed many losing bets in addition to her winning ones.
Furthermore, we do not find that petitioner lived a lavish
lifestyle or had significant accession to wealth.
We are not aware of a case in which a taxpayer received
winnings from a game of chance of the magnitude petitioner
received, but was not entitled to a penny of offsetting loss.
For example, in Jackson v. Commissioner, T.C. Memo. 2007-373, the
taxpayer received $265,795 of slot machine winnings and the
Commissioner conceded $127,165 of related losses. In Hardwick v.
Commissioner, T.C. Memo. 2007-359, the taxpayers received
$308,400 of slot machine winnings and the Commissioner conceded
$170,215 of losses. In Lutz v. Commissioner, T.C. Memo. 2002-89,
the taxpayer received slot machine winnings of $144,645 and the
Commissioner conceded $43,819 of losses to which we added $4,975.
See also Gagliardi v. Commissioner, T.C. Memo. 2008-10 (holding
that the taxpayer substantiated his slot machine losses partly on
the basis of expert witness testimony that it was highly unlikely
that the taxpayer broke even playing slot machines); Doffin v.
Commissioner, T.C. Memo. 1991-114 (taxpayer allowed $65,494 of
losses to offset $78,811 of winnings under the rule of Cohan v.
Commissioner, supra).
We conclude that petitioner incurred gambling losses, but
she was unable to substantiate the amount of the losses to which
she is entitled. Our duty is to make as close an approximation
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of the losses as we can, bearing heavily upon the taxpayer whose
inexactitude is her own making. Doffin v. Commissioner, supra.
“But to allow nothing at all appears to us inconsistent with
saying that something was spent.” Cohan v. Commissioner, supra
at 544.
On the basis of petitioner’s financial situation and the
virtual certainty that she placed many losing bets during her
years of playing slot machines, we hold that petitioner is
entitled to deduct $7,944 of gambling losses in 1999, $83,828 in
2001, and $275,638 in 2002.
B. Dependency Exemptions, Head of Household Filing Status, and
Child Tax Credits
Section 151(c)(1) provides that an exemption is allowed for
each dependent who is a child of the taxpayer who has not
attained the age of 19 at the end of the calendar year or is a
student who has not attained the age of 24 at the end of the
calendar year. Section 152(a) defines dependent to include the
son or daughter of a taxpayer over half of whose support was
received from the taxpayer for the calendar year. Under section
152(e), in the case of a child whose parents are divorced,
legally separated, or living apart and who is in the custody of
one or both parents for more than half the year, the dependency
exemption deduction generally belongs to the parent who has
custody for the greater portion of the year.
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Petitioner divorced her husband in April 2000. She credibly
testified that her children lived with her during the years at
issue except when her older son, Dustin, who had not attained the
age of 24, was away at college. She further credibly testified
that she provided most of their support. Dustin was in neither
parent’s custody during the years at issue because he had reached
the age of majority.5 See Boltinghouse v. Commissioner, T.C.
Memo. 2007-324. However, petitioner provided more than half his
support and therefore is entitled to a dependency exemption
deduction for him for the years at issue under section 152(a)
without regard to section 152(e).
Petitioner had custody of her younger son, Johnny, and
petitioner and Johnny’s father were divorced during 2001 and
2002. Therefore, petitioner is entitled to a dependency
exemption deduction for him for 2001 and 2002 under section
152(e). The record does not establish whether petitioner and
Johnny’s father, who were married throughout 1999, nevertheless
lived apart that year. However, petitioner provided more than
half of Johnny’s support in 1999. Therefore, she is entitled to
a dependency exemption deduction for him for 1999 under section
152(a) without regard to section 152(e).
5
Once a child reaches the age of majority under State law,
he is no longer in the custody of either parent for purposes of
sec. 152(e). Boltinghouse v. Commissioner, T.C. Memo. 2007-324.
Under California law a person reaches the age of majority when he
reaches 18 years of age. Cal. Fam. Code secs. 6500-6502 (West
2004).
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Under section 2(b)(1), a taxpayer is allowed to file as head
of household if the taxpayer is not married at the close of the
taxable year, is not a surviving spouse, and maintains as her
home “a household which constitutes for more than one-half of
such taxable year the principal place of abode” for certain
enumerated individuals, including a taxpayer’s child. During
2001 and 2002 petitioner was not married and maintained as her
home a household in which at least one of her children lived for
more than half of each of those years. Accordingly, petitioner
is entitled to head-of-household filing status for 2001 and 2002
but not 1999 because she was married at the close of that year.6
Section 24(a) allows a tax credit with respect to each
qualifying child of a taxpayer. For purposes of section 24, the
term “qualifying child” means a taxpayer’s child for whom the
taxpayer is entitled to a dependency exemption and who has not
attained the age of 17 as of the close of the taxable year. Sec.
6
Sec. 2(c) provides that if a taxpayer is married but living
apart from her spouse, she may be treated as unmarried for head-
of-household filing purposes if the taxpayer meets the
requirements of sec. 7703(b). Sec. 7703(b) treats an individual
as not married if: (1) The taxpayer files a separate tax return;
(2) the taxpayer maintains a household that is for more than one-
half of the taxable year the principal place of abode of the
taxpayer’s child for whom the taxpayer would be entitled to claim
a dependency exemption; (3) the taxpayer pays more than half the
cost of maintaining the household for the tax year; and (4) the
taxpayer’s spouse is not a member of the household during the
last 6 months of the tax year. The record does not establish
that petitioner’s husband was not a member of her household
during the last 6 months of 1999. Therefore, petitioner does not
qualify for head of household status for 1999.
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24(c)(1). The amount of the credit allowable under section 24(a)
is limited by the taxpayer’s adjusted gross income and may not
exceed a taxpayer’s regular tax liability. Sec. 24(b), (d).
Petitioner’s 2002 income exceeds the income limitations and
precludes her from receiving a child tax credit for that year.
Petitioner’s 1999 and 2001 income do not exceed the income
limitations. Petitioner’s older son was 19 in 1999 and 21 in
2001, and thus petitioner is not entitled to a credit for him.
She is, however, entitled to a child tax credit for 1999 and 2001
for her younger son who was only 14 in 1999 and 16 in 2001 unless
the credit exceeds her Federal income tax liability for those
years (which, subject to the parties’ computations under Rule
155, it may).
C. Itemized Deductions
Deductions are a matter of legislative grace, and a taxpayer
bears the burden of proving that she has complied with the
specific requirements for any deduction claimed. INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934); see also Rule 142(a).
Petitioner claims she is entitled to home mortgage interest
deductions. Subject to certain exceptions not applicable here, a
taxpayer is generally allowed to deduct all interest paid with
respect to the acquisition of the taxpayer’s principal residence.
Sec. 163(a), (h)(2)(D). Petitioner provided sufficient evidence
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that she paid home mortgage interest of $36,927 and $45,553
during 2001 and 2002, respectively, but provided no evidence with
respect to 1999. Accordingly, petitioner is entitled to the home
mortgage interest deduction for 2001 and 2002, but not for 1999.
Petitioner also claims she is entitled to deductions for
real estate taxes paid during the years at issue. Section 164
allows a deduction for certain taxes, including State and local
real property taxes, paid or accrued during the taxable year.
Petitioner provided sufficient evidence that she paid $3,056 in
real estate taxes for 2002, but provided no evidence with respect
to the other years at issue. Accordingly, petitioner is entitled
to the deduction for real estate taxes paid for 2002, but not for
1999 and 2001.
Petitioner claims she is entitled to other itemized
deductions including deductions for medical expenses, personal
property taxes, charitable contributions, casualty losses,
unreimbursed employee business expenses, and tax preparation
fees.7 Petitioner offered either her own vague, uncorroborated
testimony or no evidence at all to substantiate these deductions.
Accordingly, she has failed to meet her burden of proving her
entitlement to any deduction beyond the real estate tax and
mortgage interest deductions.
7
We find petitioner’s claim of entitlement to unreimbursed
employee expenses particularly dubious because she has not
admitted that she received any employment income.
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D. Additions to Tax Under Sections 6651(a)(1) and 6654
The Commissioner bears the initial burden of production with
respect to a taxpayer’s liability for additions to tax under
sections 6651(a)(1) and 6654(a). Sec. 7491(c); Rule 142(a);
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet
this burden, the Commissioner must come forward with sufficient
evidence indicating it is appropriate to impose the additions to
tax. Higbee v. Commissioner, supra at 446-447. The taxpayer
bears the burden of proof as to any exception to the additions to
tax. See sec. 7491(c); Rule 142(a); Higbee v. Commissioner,
supra at 446-447.
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing) unless the taxpayer can
establish that such failure is due to reasonable cause and not
due to willful neglect. Petitioner did not file returns for the
years at issue. She argues that she did not file returns because
she believed she had “negative income”. The record establishes
that petitioner received income in excess of her deductions and
exemptions for the years at issue.8 Petitioner’s mistakes as to,
or ignorance of, the law do not constitute reasonable cause which
8
If after application of the exemptions, standard deduction,
gambling losses, and child tax credit petitioner has no income
tax liability for 1999, she will not be liable for an addition to
tax under sec. 6651(a)(1) because the addition to tax is
calculated as a percentage of the tax required to be shown on the
return.
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would relieve her of liability for the additions to tax. See
Joyce v. Commissioner, 25 T.C. 13, 15 (1955). Accordingly, we
conclude that petitioner is liable for additions to tax under
section 6651(a)(1).
Section 6654(a) imposes an addition to tax on an
underpayment of estimated tax unless one of the statutory
exceptions applies. See sec. 6654(e). The addition to tax is
calculated with reference to four required installment payments
of the taxpayer’s estimated tax liability. Sec. 6654(c)(1);
Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), affd. 521 F.3d
1289 (10th Cir. 2008). Each required installment of estimated
tax is equal to 25 percent of the “required annual payment.”
Sec. 6654(d)(1)(A). The required annual payment is generally
equal to the lesser of (1) 90 percent of the tax shown on the
individual’s return for that year (or, if no return is filed, 90
percent of his or her tax for such year), or (2) if the
individual filed a return for the immediately preceding taxable
year, 100 percent of the tax shown on that return. Sec.
6654(d)(1)(B); Wheeler v. Commissioner, supra at 210-211. A
taxpayer has an obligation to pay estimated taxes for a
particular year only if she has a “required annual payment” for
that year. Wheeler v. Commissioner, supra at 211.
Petitioner filed her 1998 return, reporting tax due of
$1,871. Petitioner did not file Federal income tax returns or
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pay estimated taxes for 1999, 2000, 2001, and 2002. Under
section 6654(e)(1), a taxpayer is not liable for an addition to
tax under section 6654(a) if the tax shown on the return (or if
no return is filed, the taxpayer’s tax for that year) is less
than $1,000. After application of petitioner’s gambling losses,
exemptions, standard deduction, and child tax credit,
petitioner’s 1999 income tax liability is less than $1,000.
Therefore, she is not liable for an addition to tax under section
6654 for 1999. Because petitioner did not file returns or pay
estimated tax for 2000 through 2002, she is liable for additions
tax under section 6654 for 2001 and 2002 calculated with respect
to the required annual payments; i.e., 90 percent of the tax due
for the respective years.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.