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Petitioners began playing progressive slot machines on a
frequent basis in 1989. Petitioners testified that they traveled
to local casinos in the evenings after work and on weekends,
spending 20 to 40 hours each week studying and playing slot
machines. They spent the majority of their time at the Sparks
Nugget and Western Village casinos in Sparks, Nevada, and the
Peppermill Casino in Reno.
On or about April 15, 1991, petitioners filed a Form 4868
requesting an automatic 4-month extension of time to file their
1990 joint Federal income tax return and paying their estimated
1990 net tax liability of $1,813. Petitioners' request was
granted, and, on August 15, 1991, the final day of the extension,
they postmarked their 1990 return, wherein they requested a
refund of $6,461. This amount was calculated as follows: total
tax due of $7,199, less Federal income tax withheld of $11,847
and $1,813 paid with Form 4868. Petitioners received their
refund of $6,461 in a check dated September 20, 1991, issued by
the U.S. Treasury.
On the Schedule C attached to their 1990 Federal income tax
return, petitioners stated that they were engaged in the business
of being professional slot machine players. They reported income
and expenses from gambling activities in the respective amounts
of $24,777 and $47,853, resulting in a net loss of $23,076. The
expenses claimed in connection with their gambling were as
follows: (1) Automatic teller machine (ATM) charges and tips in
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