Bickers v. Commissioner

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B. H. Bickers and Lucille M. Bickers v. Commissioner. B. H. Bickers v. Commissioner.
Bickers v. Commissioner
Docket Nos. 72575, 73385.
United States Tax Court
T.C. Memo 1960-83; 1960 Tax Ct. Memo LEXIS 207; 19 T.C.M. (CCH) 440; T.C.M. (RIA) 60083;
April 29, 1960
*207

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.

Henry Klepak, Esq., Texas Bank Building, Dallas, Tex., for the petitioners. David E. Mills, Esq., for the respondent.
BLACK

Memorandum Findings of Fact and Opinion

Respondent has determined deficiencies and additions to taxes of the petitioners as follows:

Amount ofAdditions
PetitionersYearDeficiencyto Tax *
B. H. Bickers and
Lucille M. Bickers1953$15,740.83$ 787.04
B. H. Bickers195446,097.202,304.86

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 losses32,300.00
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 1stW 400691463756187
Jan 4W 861Feb 12L -115Mar 13W 116Apr 20L 240
1261679964915947
Jan 9L -532Feb 13L -206Mar 16W 611Apr 23W 1240
729659371027187
Jan 15W +439Feb 17L 404Mar 21L 501Apr 25W 941
Jan 18W +361
1529618966018128
Jan 20W +961Feb 21W 331Mar 24W 416Apr 30W 500
2490652070178628
Jan 23L -88Feb 24W 87Mar 26L 787May 4W 986
2402660762309614
Jan 25W 1647Feb 26W 400Mar 30L 498May 5L 211
4049700757329403
Jan 27L 1516Feb 28L 1561Apr 3W 1103May 7W 406
2533544668359809
Jan 29W 721Mar 1stW 1260Apr 7W 100May 8W 202
32546706693510011
Feb 2W 1629Mar 9W 398Apr 10L 811May 10L 2150
4883710461247861
Feb 4W 1421Mar 11L 225Apr 14L 240May 11W 380
6304687958848241
Feb 10W 610Mar 12L 504Apr 16W 303May 15W 1110
6914637561879351
935185781265613650
May 19W 100July 4W 300Sept 11L 675Nov 7L 305
945188781198113345
May 20W 240July 6W 1000Sept 13L 546Nov 10L 486
969198781143512859
May 25L 1824July 10L 650Sept 17W 530Nov 12W 590
786792281196513449
May 26L 706July 12L 407Sept 19W 45Nov 14W 460
716188211201013909
May 27L 775July 15W 840Sept 21W 437Nov 18W 300
638696611244714209
May 29W 335July 20W 260Sept 25L 150Nov 21W 486
672199211229714695
June 1W 1006July 23W 489Sept 27W 335Nov 26W 261
7727104101263214956
June 3W 811July 30W 97Sept 28W 262Nov 28W 386
8538105071289415342
June 6W 336Aug 1W 205Sept 30W 1165Nov 29W 101
8874107121405915443
June 8L 330Aug 8W 316Oct 1W 297Dec 1W 480
8544110281435615923
June 10W 600Aug 10W 510Oct 3L 841Dec 3W 655
9144115381351516578
June 10L 462Aug 13W 255Oct 5L 136Dec 5W 265
8682117931337916843
June 12L 54Aug 15L 1320Oct 8L 504Dec 7W 100
8628104731287516943
June 14W 226Aug 18L 415Oct 10W 675Dec 9L 2050
8854100581355014893
June 18W 115Aug 21W 361Oct 13L 285Dec 10L 241
8969104191326514652
June 20L 1050Aug 24L 350Oct 17W 1010Dec 12W 540
7919100691427515192
June 21W 401Aug 26W 1120Oct 19W 361Dec 13W 335
8320111891463615527
June 23W 500Aug 27W 1241Oct 22W 209Dec 16W 247
8820124301484515774
June 25W 323Aug 30L 890Oct 26L 640Dec 18W 245
16019
91431154014205Dec 20L 1250
June 27L 387Sept 4W 555Oct 28W 260
14769
87561209514465Dec 22L 705
June 29W 210Sept 5W 110Oct 30W 33514064
89661220514800Dec 23W 360
June 30L 903Sept 7W 406Nov 3L 60014424
Dec 28L 904
80631261114200
July 2W 515Sept 9W 45Nov 5L 55013520
Dec 29L 320
8578126561365013200

*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 1stW 35005750117508000
Jan 4L 1500Mar 2W 2250May 10W 1250July 24W 500
20008000130008500
Jan 7W 1250Mar 6W 500May 14L 2500July 28W 1750
325085001050010250
Jan 10W 1000Mar 10W 250May 18L 2500July 31W 250
42508750800010500
Jan 12W 2250Mar 15L 1250May 21L 250Aug 2L 250
65007500775010250
Jan 14L 1500Mar 19L 1000May 25W 1250Aug 6L 1750
5000650090008500
Jan 16L 1000Mar 22W 2500May 28L 500Aug 10L 250
4000900085008250
Jan 18W 2750Mar 25W 1750June 2W 2750Aug 14W 2250
6750107501125010500
Jan 21L 1750Mar 29W 1250June 5L 250Aug 18W 1500
5000120001100012000
Jan 25W 1250Mar 31W 250June 10L 500Aug 21L 750
6250122501050011250
Jan 28W 1750Apr 3W 750June 14L 250Aug 25W 2750
8000130001025014000
Jan 31W 1750Apr 6L 1750June 18L 250Aug 30L 1250
9750112501000012750
Feb 2L 750Apr 10L 1250June 21W 1500Sept 3L 1750
9000100001150011000
Feb 5L 1250Apr 14L 2500June 24W 750Sept 6L 1500
77507500122509500
Feb 9L 1750Apr 17W 1250June 28L 1000Sept 10L 1225
60008750112508275
Feb 12W 750Apr 20W 2250July 2W 1250Sept 14W 2500
6750110001250010775
Feb 15W 250Apr 24W 750July 6W 1750Sept 18W 1750
7000117501425012525
Feb 18L 2500Apr 27W 1250July 10W 250Sept 22W 500
4500130001450013025
Feb 22L 1500Apr 30L 2750July 13L 2500Sept 25W 1575
3000102501200014600
Feb 26W 1000May 3W 250July 16L 1500Sept 29L 1900
4000105001050012700
Feb 28W 1750May 7W 1250July 20L 2500Oct 4L 2250
575011750800010450
1045010500100009500
Oct 9L 1750Nov 2L 1500Nov 27W 1000Dec 22W 1500
870090001100011000
Oct 12W 2800Nov 6L 1500Nov 30W 1500Dec 24W 2000
1150075001250013000
Oct 15L 2500Nov 9W 2500Dec 3L 2000Dec 26L 1500
9000100001050011500
Oct 19L 500Nov 13W 500Dec 7L 1500Dec 28W 2500
850010500900014000
Oct 23W 500Nov 16L 1750Dec 12W 2000Dec 29L 1500
900087501100012500
Oct 27W 2750Nov 20L 250Dec 15L 500Dec 30W 500
1175085001050013000
Oct 30L 1250Nov 23W 1500Dec 18L 1000
10500100009500

*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.]↩