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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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