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W-2G issued by the casinos, as only jackpots in excess of $1,200
were reported on Forms W-2G in 2002. Neither petitioners’ tax
records, nor petitioners, specifically recorded or otherwise
accounted for petitioners’ slot machine winnings below $1,200.
Petitioners claimed gambling losses of $308,400 on their 2002
joint Federal income tax return, the exact amount of their
reported gambling winnings.
The notice of deficiency was issued to petitioners on
November 9, 2005, and reflected a deficiency of $58,945 for 2002.
Respondent disallowed $138,185 of petitioners’ claimed $308,400
gambling losses due to lack of substantiation. Petitioners filed
with this Court a timely petition, and a trial was held on
November 3, 2006, in Birmingham, Alabama.8
OPINION
I. Burden of Proof
Deductions are a matter of legislative grace, and the
taxpayer must maintain adequate records to substantiate the
amounts of any deductions or credits claimed. Sec. 6001;
8At trial, and on brief, respondent objected to the expert
testimony of petitioner’s accountant as the proper procedure
required by Rule 143(f) and the pretrial order were not followed,
and to the admission into evidence of substantiation documents
that were prepared by the accountant and Mr. Hardwick in
anticipation of trial. The Court sustained the objection and did
not permit the accountant to testify as an expert, but allowed
various numerical summary documents that Mr. Hardwick and his
accountant had prepared to be introduced.
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