Held, petitioners have failed to prove by a preponderance of evidence that they suffered deductible gambling losses in excess of $21,682 for 1953 and $46,219 for 1954. These amounts should be allowed as offsets to the amounts of admitted wagering gains of petitioner B. H. Bickers in the respective taxable years. Held, further, additions to taxes for negligence or intentional disregard of rules and regulations sustained.
Memorandum Findings of Fact and Opinion
Respondent has determined deficiencies and additions to taxes of the petitioners as follows:
Amount of | Additions | ||
Petitioners | Year | Deficiency | to Tax * |
B. H. Bickers and | |||
Lucille M. Bickers | 1953 | $15,740.83 | $ 787.04 |
B. H. Bickers | 1954 | 46,097.20 | 2,304.86 |
The deficiency for 1953 is due to the addition to the net income shown on joint return of "(a) Losses $32,300.00." This adjustment is explained in the deficiency notice as follows:
"(a) In your income tax return *208 for the year 1953 you reported $13,200.00 from ventures determined as follows:
"Total winnings | $45,500.00 |
Total losses | 32,300.00 |
Net winnings | $13,200.00 |
"Since you failed to substantiate any losses the amount of $32,300.00 claimed as such is hereby disallowed and your income for the year 1953 has been increased accordingly."
The deficiency for 1954 is due to the same type of adjustment as was made by the Commissioner for 1953 and is explained in the same manner. The only difference is as to amounts. The losses which the Commissioner disallowed for 1954 as offsetting losses were $70,375 in amount.
The additions to taxes are for negligence or intentional disregard of rules and regulations.
The issues presented are: (1) Whether petitioners have proved that petitioner B. H. Bickers suffered gambling losses in the amounts of $32,300 and $70,375 in 1953 and 1954, respectively, which petitioners are entitled to use as offsets to the undisputed gains which petitioner B. H. Bickers had from wagering transactions in those years, and (2) whether the deficiencies are due to negligence or intentional disregard of rules and regulations.
Findings of Fact
A stipulation of facts filed by the parties is incorporated *209 herein by this reference.
Petitioners B. H. Bickers and Lucille M. Bickers, husband and wife residing in Dallas, Texas, filed a joint income tax return for the taxable year 1953 with the district director of internal revenue at Dallas. B. H. Bickers (hereinafter referred to as petitioner) filed an individual income tax return for the taxable year 1954 with the district director of internal revenue at Dallas.
During the years in issue, petitioner owned and operated a private club in Dallas, the income from which is not here in question. Petitioner was also a professional gambler, in which capacity he gained most of his income. He gambled on an individual basis in Texas, Colorado, Nevada, and California. His sporting operations were diversified, extending to participation in poker, dice, and gin rummy games, side bets on the same games, and wagers placed on the outcome of various athletic contests. His gambling occurred in various places, but principally in gambling casinos and country clubs. Most of petitioner's wagering took place in forms which involved a number of other participants, but some of the betting involved only one other person. Petitioner knew some of the people with whom *210 he gambled, but not all of them.
Petitioner's only record of his gambling transactions was prepared as follows:
At some point on each day that he gambled petitioner counted the money he was carrying prior to gambling. This occurred at any time from the time he arose in the morning until immediately before engaging in wagering. At some point after he finished gambling for the day, he again counted his money. On occasion petitioner engaged in several different forms of gambling between the times he counted his money, losing at one form and winning on others. Petitioner then recorded the increase or decrease in his money as winnings or losings in his gambling on any available slip of paper, such as a matchbook cover, a cocktail napkin, or a piece of golf scorecard. The record bore the date, the amount, and the letters "W" or "L" indicating net winnings or losings for that particular day. Upon return to his office in the club he owned, petitioner placed the slips of paper in a box in his desk. Sometime after the close of each taxable year, petitioner called his secretary and another employee, known as his bookkeeper, to his office. With his secretary's aid he arranged the slips in chronological *211 order and then read them to the bookkeeper who made entries in small notebooks, figuring a running balance. After the entries were completed, they were checked over and changes made. Petitioner threw the slips of paper away after completion of the small notebooks. The small notebooks for each of the taxable years were introduced in evidence as exhibits by petitioner.
Neither petitioner's secretary nor his bookkeeper had any knowledge of the correctness of the figures on the slips of paper. They merely assisted in transferring the amounts shown thereon to the notebooks; they endeavored to do this accurately.
The entries in the notebook for 1953 are as follows:
1953 | |||||||
Jan 1st | W 400 | 6914 | 6375 | 6187 | |||
Jan 4 | W 861 | Feb 12 | L -115 | Mar 13 | W 116 | Apr 20 | L 240 |
1261 | 6799 | 6491 | 5947 | ||||
Jan 9 | L -532 | Feb 13 | L -206 | Mar 16 | W 611 | Apr 23 | W 1240 |
729 | 6593 | 7102 | 7187 | ||||
Jan 15 | W +439 | Feb 17 | L 404 | Mar 21 | L 501 | Apr 25 | W 941 |
Jan 18 | W +361 | ||||||
1529 | 6189 | 6601 | 8128 | ||||
Jan 20 | W +961 | Feb 21 | W 331 | Mar 24 | W 416 | Apr 30 | W 500 |
2490 | 6520 | 7017 | 8628 | ||||
Jan 23 | L -88 | Feb 24 | W 87 | Mar 26 | L 787 | May 4 | W 986 |
2402 | 6607 | 6230 | 9614 | ||||
Jan 25 | W 1647 | Feb 26 | W 400 | Mar 30 | L 498 | May 5 | L 211 |
4049 | 7007 | 5732 | 9403 | ||||
Jan 27 | L 1516 | Feb 28 | L 1561 | Apr 3 | W 1103 | May 7 | W 406 |
2533 | 5446 | 6835 | 9809 | ||||
Jan 29 | W 721 | Mar 1st | W 1260 | Apr 7 | W 100 | May 8 | W 202 |
3254 | 6706 | 6935 | 10011 | ||||
Feb 2 | W 1629 | Mar 9 | W 398 | Apr 10 | L 811 | May 10 | L 2150 |
4883 | 7104 | 6124 | 7861 | ||||
Feb 4 | W 1421 | Mar 11 | L 225 | Apr 14 | L 240 | May 11 | W 380 |
6304 | 6879 | 5884 | 8241 | ||||
Feb 10 | W 610 | Mar 12 | L 504 | Apr 16 | W 303 | May 15 | W 1110 |
6914 | 6375 | 6187 | 9351 | ||||
9351 | 8578 | 12656 | 13650 | ||||
May 19 | W 100 | July 4 | W 300 | Sept 11 | L 675 | Nov 7 | L 305 |
9451 | 8878 | 11981 | 13345 | ||||
May 20 | W 240 | July 6 | W 1000 | Sept 13 | L 546 | Nov 10 | L 486 |
9691 | 9878 | 11435 | 12859 | ||||
May 25 | L 1824 | July 10 | L 650 | Sept 17 | W 530 | Nov 12 | W 590 |
7867 | 9228 | 11965 | 13449 | ||||
May 26 | L 706 | July 12 | L 407 | Sept 19 | W 45 | Nov 14 | W 460 |
7161 | 8821 | 12010 | 13909 | ||||
May 27 | L 775 | July 15 | W 840 | Sept 21 | W 437 | Nov 18 | W 300 |
6386 | 9661 | 12447 | 14209 | ||||
May 29 | W 335 | July 20 | W 260 | Sept 25 | L 150 | Nov 21 | W 486 |
6721 | 9921 | 12297 | 14695 | ||||
June 1 | W 1006 | July 23 | W 489 | Sept 27 | W 335 | Nov 26 | W 261 |
7727 | 10410 | 12632 | 14956 | ||||
June 3 | W 811 | July 30 | W 97 | Sept 28 | W 262 | Nov 28 | W 386 |
8538 | 10507 | 12894 | 15342 | ||||
June 6 | W 336 | Aug 1 | W 205 | Sept 30 | W 1165 | Nov 29 | W 101 |
8874 | 10712 | 14059 | 15443 | ||||
June 8 | L 330 | Aug 8 | W 316 | Oct 1 | W 297 | Dec 1 | W 480 |
8544 | 11028 | 14356 | 15923 | ||||
June 10 | W 600 | Aug 10 | W 510 | Oct 3 | L 841 | Dec 3 | W 655 |
9144 | 11538 | 13515 | 16578 | ||||
June 10 | L 462 | Aug 13 | W 255 | Oct 5 | L 136 | Dec 5 | W 265 |
8682 | 11793 | 13379 | 16843 | ||||
June 12 | L 54 | Aug 15 | L 1320 | Oct 8 | L 504 | Dec 7 | W 100 |
8628 | 10473 | 12875 | 16943 | ||||
June 14 | W 226 | Aug 18 | L 415 | Oct 10 | W 675 | Dec 9 | L 2050 |
8854 | 10058 | 13550 | 14893 | ||||
June 18 | W 115 | Aug 21 | W 361 | Oct 13 | L 285 | Dec 10 | L 241 |
8969 | 10419 | 13265 | 14652 | ||||
June 20 | L 1050 | Aug 24 | L 350 | Oct 17 | W 1010 | Dec 12 | W 540 |
7919 | 10069 | 14275 | 15192 | ||||
June 21 | W 401 | Aug 26 | W 1120 | Oct 19 | W 361 | Dec 13 | W 335 |
8320 | 11189 | 14636 | 15527 | ||||
June 23 | W 500 | Aug 27 | W 1241 | Oct 22 | W 209 | Dec 16 | W 247 |
8820 | 12430 | 14845 | 15774 | ||||
June 25 | W 323 | Aug 30 | L 890 | Oct 26 | L 640 | Dec 18 | W 245 |
16019 | |||||||
9143 | 11540 | 14205 | Dec 20 | L 1250 | |||
June 27 | L 387 | Sept 4 | W 555 | Oct 28 | W 260 | ||
14769 | |||||||
8756 | 12095 | 14465 | Dec 22 | L 705 | |||
June 29 | W 210 | Sept 5 | W 110 | Oct 30 | W 335 | 14064 | |
8966 | 12205 | 14800 | Dec 23 | W 360 | |||
June 30 | L 903 | Sept 7 | W 406 | Nov 3 | L 600 | 14424 | |
Dec 28 | L 904 | ||||||
8063 | 12611 | 14200 | |||||
July 2 | W 515 | Sept 9 | W 45 | Nov 5 | L 550 | 13520 | |
Dec 29 | L 320 | ||||||
8578 | 12656 | 13650 | 13200 |
*212 Many figures and letters in the notebook have been changed, either by partial erasures and insertion of new figures and letters or merely by writing new figures and letters over those originally written.
Of the amounts recorded in the notebook as losses for 1953, petitioner sustained losses from gambling during that year in the amount of $21,682.
The entries in the notebook for 1954 are as follows:
1954 | |||||||
Jan 1st | W 3500 | 5750 | 11750 | 8000 | |||
Jan 4 | L 1500 | Mar 2 | W 2250 | May 10 | W 1250 | July 24 | W 500 |
2000 | 8000 | 13000 | 8500 | ||||
Jan 7 | W 1250 | Mar 6 | W 500 | May 14 | L 2500 | July 28 | W 1750 |
3250 | 8500 | 10500 | 10250 | ||||
Jan 10 | W 1000 | Mar 10 | W 250 | May 18 | L 2500 | July 31 | W 250 |
4250 | 8750 | 8000 | 10500 | ||||
Jan 12 | W 2250 | Mar 15 | L 1250 | May 21 | L 250 | Aug 2 | L 250 |
6500 | 7500 | 7750 | 10250 | ||||
Jan 14 | L 1500 | Mar 19 | L 1000 | May 25 | W 1250 | Aug 6 | L 1750 |
5000 | 6500 | 9000 | 8500 | ||||
Jan 16 | L 1000 | Mar 22 | W 2500 | May 28 | L 500 | Aug 10 | L 250 |
4000 | 9000 | 8500 | 8250 | ||||
Jan 18 | W 2750 | Mar 25 | W 1750 | June 2 | W 2750 | Aug 14 | W 2250 |
6750 | 10750 | 11250 | 10500 | ||||
Jan 21 | L 1750 | Mar 29 | W 1250 | June 5 | L 250 | Aug 18 | W 1500 |
5000 | 12000 | 11000 | 12000 | ||||
Jan 25 | W 1250 | Mar 31 | W 250 | June 10 | L 500 | Aug 21 | L 750 |
6250 | 12250 | 10500 | 11250 | ||||
Jan 28 | W 1750 | Apr 3 | W 750 | June 14 | L 250 | Aug 25 | W 2750 |
8000 | 13000 | 10250 | 14000 | ||||
Jan 31 | W 1750 | Apr 6 | L 1750 | June 18 | L 250 | Aug 30 | L 1250 |
9750 | 11250 | 10000 | 12750 | ||||
Feb 2 | L 750 | Apr 10 | L 1250 | June 21 | W 1500 | Sept 3 | L 1750 |
9000 | 10000 | 11500 | 11000 | ||||
Feb 5 | L 1250 | Apr 14 | L 2500 | June 24 | W 750 | Sept 6 | L 1500 |
7750 | 7500 | 12250 | 9500 | ||||
Feb 9 | L 1750 | Apr 17 | W 1250 | June 28 | L 1000 | Sept 10 | L 1225 |
6000 | 8750 | 11250 | 8275 | ||||
Feb 12 | W 750 | Apr 20 | W 2250 | July 2 | W 1250 | Sept 14 | W 2500 |
6750 | 11000 | 12500 | 10775 | ||||
Feb 15 | W 250 | Apr 24 | W 750 | July 6 | W 1750 | Sept 18 | W 1750 |
7000 | 11750 | 14250 | 12525 | ||||
Feb 18 | L 2500 | Apr 27 | W 1250 | July 10 | W 250 | Sept 22 | W 500 |
4500 | 13000 | 14500 | 13025 | ||||
Feb 22 | L 1500 | Apr 30 | L 2750 | July 13 | L 2500 | Sept 25 | W 1575 |
3000 | 10250 | 12000 | 14600 | ||||
Feb 26 | W 1000 | May 3 | W 250 | July 16 | L 1500 | Sept 29 | L 1900 |
4000 | 10500 | 10500 | 12700 | ||||
Feb 28 | W 1750 | May 7 | W 1250 | July 20 | L 2500 | Oct 4 | L 2250 |
5750 | 11750 | 8000 | 10450 | ||||
10450 | 10500 | 10000 | 9500 | ||||
Oct 9 | L 1750 | Nov 2 | L 1500 | Nov 27 | W 1000 | Dec 22 | W 1500 |
8700 | 9000 | 11000 | 11000 | ||||
Oct 12 | W 2800 | Nov 6 | L 1500 | Nov 30 | W 1500 | Dec 24 | W 2000 |
11500 | 7500 | 12500 | 13000 | ||||
Oct 15 | L 2500 | Nov 9 | W 2500 | Dec 3 | L 2000 | Dec 26 | L 1500 |
9000 | 10000 | 10500 | 11500 | ||||
Oct 19 | L 500 | Nov 13 | W 500 | Dec 7 | L 1500 | Dec 28 | W 2500 |
8500 | 10500 | 9000 | 14000 | ||||
Oct 23 | W 500 | Nov 16 | L 1750 | Dec 12 | W 2000 | Dec 29 | L 1500 |
9000 | 8750 | 11000 | 12500 | ||||
Oct 27 | W 2750 | Nov 20 | L 250 | Dec 15 | L 500 | Dec 30 | W 500 |
11750 | 8500 | 10500 | 13000 | ||||
Oct 30 | L 1250 | Nov 23 | W 1500 | Dec 18 | L 1000 | ||
10500 | 10000 | 9500 |
*213 As was the case with the 1953 notebook, there are many changes and partial erasures in the notebook for 1954.
Of the amounts recorded in the notebook as losses for 1954, petitioner sustained losses from gambling during that year in the amount of $46,219.
Agents of the internal revenue service examined petitioner's returns several times in the years prior to the years here in question and in the course of such examinations they worked net worth statements on petitioner. On February 18, 1952, a notice was served upon petitioner advising him that he was not maintaining sufficient records for the purpose of determining his correct liability for Federal income taxes; that each taxpayer is required by law to make a return of his correct income; and that he must, therefore, maintain such accounting records as would enable him to do so. The notice contains, among other things, the following:
"This is an official notice to you to keep complete records from which your tax liability may be properly determined. Continuing failure to keep such records may subject you to the penalties provided by law. The records you are required to keep include records showing in detail each transaction engaged *214 in by you, including the date thereof, the amount of each item of gross income received, and a description of the nature of the income so received. Detailed records should also be maintained of all payments made by you, including the date of each payment, the name of the payee, address of payee, and a description of the nature of each payment.
"Section 29.54-1 of Regulations 111 provides in part as follows:
"'The books or records required by this section shall be kept at all times available for inspection by internal-revenue officers, and shall be retained so long as the contents thereof may become material in the administration of any internal-revenue law.'"
Petitioner failed either negligently or intentionally to keep and retain such books and records as to enable accurate determination of his liability to income taxes during the years in issue.
Opinion
BLACK, Judge: Petitioner attacks the respondent's determinations of deficiencies in his income taxes for the years 1953 and 1954 as arbitrary and invalid. For 1953 and 1954, petitioner returned $13,200 and $13,000, respectively, as sums which he claims represent his income from gambling during those years. On his returns he sought *215 no business deductions from those sums. During the course of investigation by an internal revenue agent, petitioner produced two small notebooks in which he had listed $45,500 and $83,375 as winnings from gambling received in those years. He had offset these winnings by claimed losses of $32,300 in 1953 and $70,375 in 1954. Respondent's deficiency notices increase petitioner's income for those years by the amounts shown in the notebooks as losses. It is clear from the record that each amount entered in the notebooks as a winning represented gain from at least one closed gambling transaction and in some instances the net gain on several closed gambling transactions. The yearly totals of the daily winnings were includible in petitioner's annual gross income as defined in section 22(a) of the 1939 Code and section 61(a) of the 1954 Code. 1 Cf. Winkler v. United States, 230 F.2d 766">230 F. 2d 766. But petitioner is entitled to offset his wagering gains by his wagering losses. Section 23(h), 1939 Code, reads: "(h) Wagering Losses. - Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions." Section 165(d), 1954 Code, which is applicable to the taxable *216 year 1954, is to the same effect.
Respondent, in the deficiency notices, disallowed, as unsubstantiated, deduction of claimed gambling losses as shown in the notebooks in the amounts of $32,300 and $70,375 in 1953 and 1954, respectively. In the year immediately prior to the years in issue petitioner had been served with a notice to maintain and retain *217 records from which his tax liability could accurately be determined. Petitioner's only records of the claimed losses are, at best admittedly secondary evidence, prepared after the close of each taxable year from various types of memoranda described in our Findings of Fact. Respondent has accepted the winnings as shown in the notebooks compiled by petitioner for the years 1953 and 1954 as being correct but has refused to accept as being substantiated the wagering losses shown on such notebooks. Therefore, in his determination of the deficiencies respondent has included in petitioner's income all of his wagering gains shown in the notebooks and has not allowed any offsetting losses shown in the same notebooks. Respondent called no witnesses in support of his determination, but, as we said in Anthony Delsanter, 28 T.C. 845">28 T.C. 845, at 858:
"The burden was on the petitioner to show that the determination was erroneous. If that burden was difficult to meet by reason of their destruction of their records, it is a situation that they created for themselves. But they cannot shift the burden to the Commissioner and then complain that, since he has not put witnesses on the stand justifying his determination, *218 it is arbitrary and must therefore be disapproved. * * *"
Although we have concluded that respondent's disallowance of offsetting losses was erroneous in part, we do not conclude that it is arbitrary and invalid as petitioner contends. Cf. Marx v. Commissioner, 179 F. 2d 938.
We must now consider what losses, if any, petitioner has proved that he suffered during the year in issue. "In seeking a deduction the taxpayer has a burden greater than merely proving the Commissioner wrong; he must establish the essential facts from which a correct determination can be made." Mahler v. Commissioner, 119 F. 2d 869, 870. Petitioner asserts that he suffered the losses reflected in the notebooks. After a careful consideration of all the evidence in the record, we are unable to accept petitioner's claim that he incurred the offsetting wagering losses to the extent that he claims. His testimony was to the effect that at some point in the day prior to gambling he counted his money and he counted it again subsequent to gambling, apparently shortly after cessation of daily gambling activities. He further testified that he made personal expenditures while gambling. There is no evidence that he maintained *219 a separate "bankroll" for gambling. The opportunity, under such a system, for including extensive personal expenses in the daily decreases in cash which petitioner recorded as losses is so clear that we are unable to accept the figures in the notebooks as truly portraying his gambling losses.
We are satisfied, however, from the whole record, that petitioner suffered substantial gambling losses, as well as gains, during the years in issue, and that loss entries in the notebooks, adjusted to reflect omission of those of which we are unconvinced, are reflective of the wagering losses sustained. We have concluded, therefore, in the exercise of our best judgment and bearing heavily upon petitioner whose inexactitude is of his own making, that petitioner suffered offsetting wagering losses during the years in issue in the amounts set forth in our Findings of Fact. Cf. Cohan v. Commissioner, 39 F.2d 540">39 F. 2d 540.
Respondent has determined additions to the taxes here in issue for negligence or intentional disregard of rules and regulations under section 293(a), 1939 Code, and section 6653(a), 1954 Code. Petitioner had been subjected to investigations by internal revenue agents at other times prior *220 to the years in issue. In 1952 he was served, pursuant to section 54(b), 1939 Code, with a notice to maintain and retain adequate records from which his tax liability could be determined. We have already concluded that petitioner's records did not accurately reflect his income, and viewing the facts in their most favorable light, petitioner was, at best, negligent in failing to maintain and retain better records. We sustain, therefore, these additions, modified to reflect reductions in the determined deficiencies.
Decisions will be entered under Rule 50.
Footnotes
*. Imposed under section 293(a), Internal Revenue Code of 1939, for taxable year 1953, and under section 6653(a), Internal Revenue Code of 1954↩, for taxable year 1954.
1. SEC. 22. GROSS INCOME.
(a) General Definition. - "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service (including personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing), of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *
[For the purposes of this case, section 61(a) of the 1954 Code is to the same effect.]↩