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Petitioner spent time traveling to and from the casinos,
scouting machines, and studying strategy. He obtained a tutoring
program to learn how to play and avoid mistakes. Sometimes he
would observe other players and watch for a “positive” machine.5
He would be involved in video poker and related activities two or
three times during the workweek and again on weekends.
Petitioner hit at least two big jackpots--approximately
$60,000 each--but overall always lost money. Because he lost
more money than he made in 2003, he used some of his savings to
support himself.
Petitioner filed a Schedule C, Profit or Loss From Business,
for the taxable year 2003. Reporting as a professional gambler,6
he claimed $1,311,200 in gross income from gambling, and a
4(...continued)
work because, while some video poker games may have a payback
rate at or in excess of 100 percent, assuming “error-free,
perfect play”, most games offer a payback rate of less than 100
percent, even when played with perfect strategy. See, e.g.,
http://en.wikipedia.org/wiki/Video_poker. Of course,
consistently error-free, perfect play is nearly impossible, and
most players will lose a few cents or fractions thereof for each
dollar bet over the long term. That said, short-term results do
not always follow long-term statistical probabilities, which is
why people still gamble.
5 A “positive” machine is a machine with a payout rate of
100 percent or better.
6 H&R Block, petitioner’s tax preparer, determined that
petitioner was a professional gambler because he spent more than
20 hours per week on the activity.
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Last modified: May 25, 2011