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Petitioners attached three Schedules C, Profit or Loss From
Business, to their 1999 return. The first two Schedules C
related to businesses operated by Mrs. Hackworth. The third
Schedule C related to petitioner’s gambling activities. On his
Schedule C, petitioner reported gross receipts of $178,236 from
his gambling activities, which were referred to as “services” on
this form. Petitioner also deducted $152,016 for “legal and
professional services” on this form. This deduction was taken
for the cash that petitioner forfeited to the State of South
Carolina as a result of his violation of South Carolina’s
gambling laws.
In the statutory notice of deficiency sent to petitioners,
in addition to the adjustments no longer contested, the IRS
disallowed the $152,016 deduction claimed on petitioner’s
Schedule C. The IRS determined that petitioners had not
established that any amount of this claimed deduction represented
a deductible expense, was an ordinary and necessary business
expense, or was expended for the purpose designated.
Accordingly, the IRS increased petitioners’ taxable income for
1999 by $152,016.
OPINION
Petitioners seek a deduction for the cash that petitioner
voluntarily forfeited to the State of South Carolina under
section 16-19-80 (“Forfeiture of wagers”) of the Code of Laws of
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