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During the year 2002, petitioner won $13,400 on slot
machines at several casinos. The payers issued information
returns to evidence these winnings; however, the $13,400 won by
petitioner was not included by petitioners as income on their
2002 Federal income tax return. Although petitioner experienced
some losses at these casinos, petitioners did not deduct any
gambling losses on their return. Petitioners contend that the
reason why petitioner’s gambling winnings were not included as
income on their 2002 income tax return is because petitioner’s
gambling losses exceeded her winnings, and, therefore, the
winnings did not have to be reported as income. Respondent,
although agreeing that the losses were at least equal to the
winnings, does not share that view.
In the notice of deficiency, respondent determined that the
$13,400 in gambling winnings constituted gross income and that
petitioners were entitled to an itemized deduction in an amount
equal to their gambling losses, instead of the standard deduction
previously claimed. As a result of treating their winnings and
losses in that way, a larger amount of the Social Security
benefits was determined to be taxable (over the amount reported
by petitioners), and the $395 credit for qualified retirement
savings was eliminated.
Petitioners take issue with respondent’s adjustment as to
the character of their gambling winnings. They contend that,
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Last modified: May 25, 2011