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Petitioner filed her return for 2003 reporting that she was
in the trade or business of gambling. She deducted her gambling
losses as an expense to the extent of her gambling winnings,
totaling $1,408,740 in 2003. Respondent examined petitioner’s
return for 2003 and issued a deficiency notice. Petitioner
timely filed a petition.
Discussion
The sole issue for decision is whether petitioner was in the
trade or business of gambling in 2003. If petitioner was in the
trade or business of gambling, she may deduct her wagering losses
to the extent allowable in computing adjusted gross income.3 See
sec. 62. If petitioner was not in the trade or business of
gambling, on the other hand, she may only deduct the wagering
losses to the extent allowable as an itemized deduction to
compute taxable income. See Calvao v. Commissioner, T.C. Memo.
2007-57.
All ordinary and necessary expenses paid or incurred during
the taxable year in carrying on a trade or business are generally
deductible. Sec. 162(a). An activity must be conducted with
continuity, regularity, and the primary purpose of earning a
profit to be considered a trade or business under section 162.
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). Whether the
3While sec. 165(a) generally permits the deduction of losses
from gross income, there is a special rule limiting the deduction
of gambling losses. Losses from wagering transactions may only
be deducted to the extent of gains from wagering transactions.
Sec. 165(d).
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