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deduct expenses connected with wagering in excess of gross
receipts from the wagering activities under section 165(d).
Respondent also determined that petitioners were liable for an
addition to tax under section 6651(a)(1) for failure to file
their return within the time prescribed by law.
Section 165(d) provides that "Losses from wagering
transactions shall be allowed only to the extent of the gains
from such transactions." In Boyd v. United States, 762 F.2d
1369, 1372-1373 (9th Cir. 1985), the Ninth Circuit Court of
Appeals stated:
To resolve the conflict between section 162(a) and 165(d),
we looked to the rule that a specific statute controls a
general statute. * * * Section 162(a) deals with all
business expenses, whereas 165(d) specifically addresses
gambling losses. Section 165(d) therefore controls, and a
gambling loss, although it may be a business expense, is
deductible only to the extent of gambling gains. [Citations
omitted.]
See also Valenti v. Commissioner, T.C. Memo. 1994-483. As such,
petitioners are not entitled to claim wagering losses in excess
of their winnings even assuming they were engaged in the business
of being professional slot machine players. See Kozma v.
Commissioner, T.C. Memo. 1986-177 (related expenses included in
wagering losses subject to section 165(d) limitations).
Respondent is sustained on this issue.
In an attempt to overcome the limitation of section 165(d),
petitioners pose several arguments: (1) Respondent is estopped
from disputing their return as filed because the petitioners were
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