James Castagnetta - Page 7

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          Discussion                                                                  
               The issue in this case is whether petitioner’s gambling                
          activity constituted a trade or business for purposes of section            
          162 during 2001.  If petitioner were engaged in a trade or                  
          business of gambling, wagering losses, to the extent deductible             
          under section 165(d),4 would be deducted in computing adjusted              
          gross income.  See sec. 62.  On the other hand, if petitioner               
          were not in a trade or business of gambling, wagering losses, to            
          the extent deductible under section 165(d), would be deductible             
          as an itemized deduction in the computation of taxable income.              




               4  In general, sec. 165(a) 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             
          transactions.”  Sec. 165(d); sec. 1.165-10, Income Tax Regs.  We            
          construed the phrase “losses from wagering transactions” to                 
          include not only losing wagers but also for other expenses                  
          incurred in connection with gambling transactions.  See Estate of           
          Todisco v. Commissioner, 757 F.2d 1 (1st Cir. 1985), affg. T.C.             
          Memo. 1983-247; Offutt v. Commissioner, 16 T.C. 1214 (1951); see            
          also Praytor v. Commissioner, T.C. Memo. 2000-282 (citing                   
          Kochevar v. Commissioner, T.C. Memo. 1995-607 (holding that slot-           
          machine players, even if construed to be in the trade or business           
          of gambling, could deduct gambling losses and expenses, including           
          automatic teller charges, office supplies, travel mileage, and              
          meals, only to the extent of the their winnings)); Valenti v.               
          Commissioner, T.C. Memo. 1994-483 (holding that a deduction for             
          losses incurred in wagering transactions is subject to sec.                 
          165(d) regardless of the fact that the taxpayer was in the trade            
          or business of gambling); Kozma v. Commissioner, T.C. Memo. 1986-           
          177 (construing the phrase “losses from wagering transactions” as           
          used in sec. 165(d) to include expenses incurred by a                       
          professional gambler for transportation, meals, lodging,                    
          admission fees, and office supplies).                                       




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