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Item 1994 1995 1996
Interest deduction $4,719 $8,868 $9,303
Losing wagers 70,125 54,797 267,841
Net loss 25,044 38,715 33,143
The net losses listed above offset other income reported on
petitioners’ returns.
On each Schedule C petitioner described his profession as a
“Professional Gambler”. The parties stipulated that petitioner
“was in the trade or business of legal gambling” during each year
in issue. They further stipulated that during 1996, petitioner
incurred additional expenses totaling $41,992.23 in connection
with his gambling trade or business.
In the notice of deficiency respondent disallowed the net
losses referred to above. According to the explanation in the
notice of deficiency, each net loss was disallowed in full
because “gambling losses are only allowed to the extent of gains
derived from such transactions.”
Discussion
In general, section 165(a)1 allows a taxpayer to deduct “any
loss sustained during the taxable year and not compensated for by
insurance or otherwise.” Losses from wagering transactions,
however, are “allowed only to the extent of the gains from such
1 Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue.
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Last modified: May 25, 2011