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Congress has made a policy decision such that, while section
165 generally allows losses to be deducted from gross income,
“[l]osses from wagering transactions shall be allowed only to the
extent of the gains from such transactions.”7 Sec. 165(d); see
also sec. 165(a). However, neither the Internal Revenue Code nor
the regulations define what constitutes a wagering activity.
When a term is not defined, we must apply the term’s “plain,
obvious, and rational meaning.” Liddle v. Commissioner, 103 T.C.
285, 293 n.4 (1994), affd. 65 F.3d 329 (3d Cir. 1995); see also
Boyd v. United States, 762 F.2d 1369, 1373 (9th Cir. 1985).
According to the dictionary, a “wager” is defined as “something
risked or staked on an uncertain event” or “a bet”. Random House
College Dictionary (1968). Similarly, “to wager” is
6(...continued)
redesignated sec. 23(h) by the Revenue Act of 1938, ch. 289, 52
Stat. 461 and then continued as such in the 1939 Code until
enacted as sec. 165(d) in the 1954 Code) uses the terms
“wagering” and “gambling” interchangeably.
7 Sec. 165(d) applies to both professional and recreational
gamblers. See, e.g., Boyd v. United States, 762 F.2d 1369 (9th
Cir. 1985); Offutt v. Commissioner, 16 T.C. 1214 (1951);
Heidelberg v. Commissioner, T.C. Memo. 1977-133. One of the
consequences to professional gamblers is that the loss carryover
provisions of sec. 172 are unavailable for amounts attributable
to wagering activity. That is not an issue in this case as Mrs.
Tschetschot had other income to absorb her expenses properly
deductible as a professional. One of the consequences to
nonprofessionals is that they may only deduct gambling losses if
they itemize deductions on their tax returns. Sec. 62(a); see
also Heidelberg v. Commissioner, supra.
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