Ali and Arlene Mohammadpour - Page 6
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For a taxpayer engaged in the trade or business of gambling,
gambling losses are deductible from gross income in arriving at
adjusted gross income. See sec. 62. However, for a taxpayer not
in the trade or business of gambling, gambling losses are not
taken into account in computing adjusted gross income but rather
are deductible as an itemized deduction in arriving at taxable
income. See sec. 63(a).5
Petitioners do not dispute that if they are required to
report Mr. Mohammadpour’s gambling losses as an itemized
deduction, they are not entitled to the child tax credit and
their itemized deductions are as determined by respondent.
However, they contest respondent’s categorization of Mr.
Mohammadpour’s losses from gambling as an itemized deduction,
claiming that his gambling activity was a trade or business.
The Supreme Court, in Commissioner v. Groetzinger, 480 U.S.
23 (1987), held that a taxpayer may be in the trade or business
of gambling where he or she engages in the gambling activity with
continuity and regularity and with the primary purpose of making
a profit. A sporadic activity, hobby, or amusement diversion
5Regardless of whether a taxpayer’s gambling activity
constitutes a trade or business, sec. 165(d) provides: “Losses
from wagering transactions shall be allowed only to the extent of
the gains from such transactions.” See also sec. 1.165-10,
Income Tax Regs. Petitioners do not dispute that sec. 165(d)
limits their gambling loss deduction to the amount of their
winnings. Nor do they seek to offset gambling losses against
income from other sources or to carry over gambling losses to
other tax years.
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Last modified: November 10, 2007