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activity for the production of income for a livelihood. To be
sure, the volume of the activity may have gotten out of hand, but
the underlying purpose for the activity did not change.
Petitioner was not in a trade or business of gambling.
Petitioner also contends that he settled this case pursuant
to the June 1, 2004, letter. If we treat the letter as a
prepetition settlement attempt, the requirements of sections 7121
and 7122 (settlement agreements) have not been satisfied. See
Dormer v. Commissioner, T.C. Memo. 2004-167. If we treat the
letter as a postpetition offer of settlement, that offer was
contingent on petitioners executing the total agreement
statement, and there is no evidence that they complied with that
requirement. In this regard, petitioner testified that he did
not know, until October 2004, that section 165(d) disallows
gambling losses that exceed gambling income and that he then told
the Appeals officer in Wisconsin that he “was going to agree to
that assessment and pay the tax and the interest.” There can be
no question that petitioners had not previously accepted any
offer to settle. It seems most likely that petitioner was trying
to play both ends against the middle, and when he learned of
section 165(d) he then attempted to resuscitate the offer that
they had ignored. We do not find that the offer in the June 1,
2004, letter, assuming it constituted a valid offer, was timely
accepted.
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