T.C. Memo. 2011-77
UNITED STATES TAX COURT
WILLIAM JONES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5776-09. Filed April 4, 2011.
Donald J. Mock, for petitioner.
Angela B. Friedman, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner’s 2006 Federal income tax of $2,885.1 The issue for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Amounts are rounded to the nearest dollar.
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decision after concessions2 is whether petitioner is entitled to
deduct gambling losses for 2006.
FINDINGS OF FACT
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. At the time petitioner
filed his petition, he resided in Chicago, Illinois.
Petitioner is a recreational gambler who played slot
machines regularly in 2006 at various Chicagoland area casinos.
Petitioner had income from gambling winnings in 2006 of $7,000.
Petitioner kept no diary, log, or record of any kind of his
gambling losses. Petitioner used a casino members club card on
rare occasions, but because he seldom used such a card, none of
the casinos petitioner claims to have frequented has any record
of his gambling winnings or losses.
At trial, petitioner presented his bank account records,
which indicate that he had a balance of $7,531 on December 31,
2005, and a balance of $946.64 on December 31, 2006. Petitioner
testified that most of the money withdrawn from his bank account
in 2006 was spent on gambling.
2
The parties’ stipulation of settled issues states: (1)
Petitioner had income from wages in 2006 of $23,204; (2)
petitioner is entitled to a standard deduction; (3) petitioner is
entitled to a single personal exemption; and (4) petitioner is
liable for additions to tax pursuant to secs. 6651(a)(1) and (2)
and 6654. The amount of each addition is computational and
depends on the resolution of this case.
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Petitioner failed to file Form 1040, U.S. Individual Income
Tax Return, for 2006. Respondent prepared a substitute for
return under section 6020(b), which gave rise to the notice of
deficiency. Petitioner filed a timely petition, and a trial was
held on March 5, 2010, in Chicago, Illinois.
OPINION
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);
McClanahan v. United States, supra at 632 n.1 (citing Winkler v.
United States, 230 F.2d 766 (1st Cir. 1956)). In order to
establish entitlement to a deduction for gambling losses
petitioner 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.
Petitioner failed to present credible evidence of gambling
losses in 2006. Petitioner did not maintain a diary or any other
contemporaneous record reflecting his gambling losses. In fact,
petitioner has not been able to assert with any specificity the
amount of his gambling losses in 2006. At trial, petitioner
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attempted to substantiate gambling losses, relying only on the
theory that his losses must have approximately equaled the
difference between his beginning-of-year and end-of-year bank
account balances. We conclude that petitioner has failed to
satisfy his burden of substantiating his 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); Sanford v. Commissioner, 50 T.C. 823,
827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969);
sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014
(Nov. 6, 1985). In these instances the Court is permitted to 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.
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, supra at 742-743. Without
such a basis, any allowance would amount to unguided largesse.
Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957).
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The record provides no satisfactory basis for estimating
petitioner’s gambling losses. See Stein v. Commissioner, supra.
Unlike taxpayers in cases such as Doffin v. Commissioner, T.C.
Memo. 1991-114, where evidence of the taxpayer’s lifestyle and
financial position allowed this Court to approximate
unsubstantiated gambling losses, petitioner has failed to produce
any evidence to corroborate his story. Consequently, the Court
will not apply the Cohan rule to estimate the amount of
petitioner’s gambling losses.
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.