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section 165(d) allows a taxpayer to deduct losses from gambling
transactions only to the extent of gains from such transactions.
Petitioners agree that all of their bingo winnings should
have been reported, but claim entitlement to a gambling loss
deduction not listed on their 1994 return. At trial petitioners
explained that the amount of bingo winnings reported on their
1994 return was a net amount. Mrs. Smith estimated that she
spent more than $100 per week to play bingo during 1994. She
calculated her total bingo losses to be $6,900 for that year.
She computed her winnings to include the $12,600 reported on
Forms W-2G, plus $250 in other winnings received in $50 or $100
increments. The amount of bingo winnings reported on
petitioners' 1994 return was calculated by subtracting estimated
losses from estimated winnings.
Respondent argues that petitioners are not entitled to any
deduction for gambling losses because they failed to maintain
adequate books and records from which the extent of their bingo
winnings and losses during 1994 can be established.
Section 6001 and the corresponding regulations require
taxpayers to keep adequate records to substantiate their income
and deductions. See also Rev. Proc. 77-29, 1977-2 C.B. 538.
When a taxpayer fails to keep records, but a court is convinced
that deductible expenditures were incurred, the court "should
make as close an approximation as it can, bearing heavily if it
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