John D. Smith and Hazel B. Smith - Page 4

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          the amounts spent or won playing bingo during 1994.  They saved             
          some admission receipts and cards, but these documents were                 
          discarded prior to the time that they were notified that their              
          1994 year was under examination.                                            
               During a 6- or 7-week period in 1994 Mrs. Smith was                    
          particularly lucky.  She enjoyed $12,600 in bingo winnings, which           
          were reported to her and respondent on Forms W-2G.                          
               Petitioners included $5,950 in bingo winnings in the income            
          reported on their 1994 Federal income tax return.  The manner in            
          which that amount was calculated was not explained on the return.           
          They did not include any portion of the disability benefits                 
          received by Mr. Smith in their reported income.                             
               In the notice of deficiency respondent increased                       
          petitioners' income by the excess of the amount of bingo winnings           
          reported on the Forms W-2G over the amount reported on their                
          return.  Respondent also increased petitioners' income by the               
          amount of disability benefits received by Mr. Smith.  Other                 
          adjustments were made in the notice of deficiency but are not in            
          dispute in this case.                                                       
                                       OPINION                                        
          Bingo Winnings and Losses                                                   
               Although raised in the context of unreported gambling                  
          income, in essence the controversy between the parties focuses              
          upon the allowance of a gambling loss deduction.  In general,               





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