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OPINION
I. Petitioner’s Gambling Activity
Respondent determined petitioner was not in the trade or
business of gambling during 2002 and thus could not claim his
gambling losses as a Schedule C deduction. Petitioner argues he
was in the trade or business of gambling because he pursued the
activity full time, in good faith, with regularity, and for the
production of income.6
Section 162(a) allows deductions for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business. If a taxpayer were engaged in
the trade or business of gambling, losses would be deductible
from gross income in arriving at the adjusted gross income. See
sec. 62. However, if the taxpayer were not in the trade or
business of gambling, his losses would be deductible as an
itemized deduction in arriving at taxable income. See sec.
63(a). Regardless of whether the gambling activity constituted a
trade or business, section 165(d) provides: “Losses from
wagering transactions shall be allowed only to the extent of the
6 The resolution of this issue does not impact the amount
of the allowable gambling loss deduction. See sec. 165(d).
However, the resolution of this issue does impact the amount of
the deficiency. If the gambling loss deduction were shifted from
Schedule C to Schedule A, Itemized Deductions, it would increase
petitioner’s adjusted gross income, thus limiting under sec. 68
the extent to which itemized deductions other than the gambling
loss are allowable.
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Last modified: May 25, 2011