T.C. Memo. 2010-54
UNITED STATES TAX COURT
DAVID J. AND LETITIA B. CRAWFORD, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10413-08. Filed March 22, 2010.
David J. and Letitia B. Crawford, pro sese.
Wesley J. Wong, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Respondent determined a $2,230 deficiency in
petitioners’ 2006 Federal income tax. The deficiency is
attributable to respondent’s disallowance of David J. Crawford’s
(petitioner’s) deductions for losses and some expenses from
gambling. The parties submitted this case with the facts fully
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stipulated under Rule 122.1 The two issues presented for our
consideration are whether petitioner, a professional gambler, may
deduct net losses from his gambling activity against other income
and whether petitioner has shown entitlement to a $2,400
deduction for “promotional activities”.
Background
Petitioner and his wife, Letitia B. Crawford (Mrs.
Crawford), resided in Nevada at the time their petition was
filed.2 For 2006 petitioners filed a joint Form 1040, U.S.
Individual Income Tax Return. Mrs. Crawford reported $41,742 in
wage income, and petitioners reported $42 in interest income.
Attached to the 2006 income tax return was petitioner’s Schedule
C, Profit or Loss From Business, on which he described his
profession as “PROFESSIONAL GAMBLER”. Petitioner reported
$61,090 in gross income from gambling winnings and the following
costs and expenses:
1
Rule references are to this Court’s Rules of Practice and
Procedure, and section references are to the Internal Revenue
Code (Code) in effect for the year in issue. No question was
raised concerning the shifting of the burden of proof under sec.
7491(a).
2
When their petition was filed, petitioners elected the
small tax case procedure under sec. 7463. The Court granted
petitioners’ unopposed motion to remove the small tax case
designation.
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Cost/Expense Amount
Legal and professional services $360
Deductible meals and entertainment 2,182
Cost of plays at various casinos 37,231
Promotional activities 2,400
Live action poker playing at various
casinos 46,869
Total 89,042
Accordingly, petitioner had a net loss from his gambling activity
of $27,952. Petitioners sought to apply the net gambling loss to
reduce their other income. That reduction, along with other
deductions and personal exemptions would have reduced
petitioners’ tax liability to zero. Respondent disallowed
$25,410 of the net gambling loss in determining an income tax
deficiency, and petitioners petitioned this Court. The $2,542
difference between the $25,410 disallowed and the $27,952 loss
claimed is due to respondent’s allowance of petitioner’s $360
legal and professional services expense and the $2,182 meals and
entertainment expense. Respondent disallowed the $2,400
petitioner claimed as a promotional activities expense.
Discussion
The legal controversy we consider focuses on the interplay
between section 162(a) (which allows deductions for ordinary and
necessary business expenses) and section 165(d) (which limits
wagering losses to the amount of wagering income). Section
162(a) generally allows a deduction for ordinary and necessary
expenses sustained in carrying on a trade or business.
Subsection (d) of section 165 specifically addresses wagering
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losses, as follows: “Losses from wagering transactions shall be
allowed only to the extent of the gains from such transactions.”
Petitioner argues that the limitation of section 165(d) does not
apply where a taxpayer is a professional gambler; i.e., in the
business of wagering. Respondent argues that the limitation of
section 165(d) applies irrespective of whether the wagering
income and losses are in a business or nonbusiness setting.
Petitioner relies on Commissioner v. Groetzinger, 480 U.S.
23 (1987), in support of his position. In that case the Supreme
Court considered a substantially similar factual pattern.
However, the question was whether the taxpayer’s gambling loss
deduction was an item of tax preference and caused a minimum tax
liability under section 56(a). For purposes of section 56(a)
minimum tax preferences, the Supreme Court held that the taxpayer
(a full-time gambler) was in a “trade or business” and that his
loss deduction was not an item of tax preference and therefore
not subject to alternative minimum tax.3
In a footnote to its Groetzinger opinion the Supreme Court
expressed the caution that it was interpreting the phrase “trade
or business” solely with respect to the Code sections being
considered. Id. at 27 n.8. Respondent does not question whether
petitioner is in the business of wagering. Respondent contends
3
In 1982 Congress amended the minimum tax provisions to make
it clear that “gambling” loss deductions were excluded from the
alternative minimum tax base.
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that section 165(d) applies irrespective of whether petitioner
was in the business of wagering.
Petitioner is not the first taxpayer to seek to use the
Groetzinger holding in support of offsetting gambling losses
against other income. See, e.g., Lyle v. Commissioner, T.C.
Memo. 1999-184, affd. without published opinion 218 F.3d 744 (5th
Cir. 2000). In each such instance the result has been the same--
the explicit language of section 165(d) trumps the general
language of section 162(a) and limits wagering losses to the
amount of wagering gains. See, e.g., Valenti v. Commissioner,
T.C. Memo. 1994-483.
Petitioner presented no argument that would cause this Court
to reconsider its prior holdings. We accordingly hold that
petitioner is not entitled to deduct his gambling losses that
exceed the amount of his gambling gains.
We now turn to the $2,400 deduction that petitioner claimed
for “promotional activities” and that respondent disallowed in
the notice of deficiency. Respondent contends that petitioner is
not entitled to that deduction for failure to show that the
expenses were ordinary and necessary and/or that they were
actually incurred.
This case was submitted fully stipulated. No facts were
stipulated that would show that these expenses were incurred or
that they were ordinary and necessary business expenses.
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Accordingly, petitioner has failed to show entitlement to the
$2,400 deduction irrespective of the section 165(d) limitation.
See Rule 142(a); Higbee v. Commissioner, 116 T.C. 438, 440
(2001).
To reflect the foregoing,
Decision will be entered
for respondent.