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Mr. Hunner prepared net worth statements with supporting
documents for each line item for Mr. Gagliardi as of December 31,
1998 through 2001 (net worth statements). The net worth
statements were prepared using records from 1998, 1999, 2000, and
2001. The net worth statements reflect that Mr. Gagliardi did
not have any unaccounted-for increase in his net worth from
gambling activities for the years at issue.
Respondent claims that the summaries of living expenses do
not include expenses Mr. Gagliardi incurred. Respondent objected
to the documents listing petitioner’s living expenses, stating:
This is a document that respondent would have no way of
corroborating whether it’s true or not. We simply have
to rely on the testimony of Mr. Gagliardi. Again, this
is not the way the government can do business is [sic]
simply relying on people’s words. * * * [T]here’s just
absolutely no way I could know whether that was a
complete list or an incomplete list, whether that was
true or not true. I certainly wasn’t with Mr.
Gagliardi during that time period.[15]
15 Ironically, the same could be said for a gambling log.
Additionally, respondent’s counsel claimed that the
Government cannot shoulder the burden of doing a net worth
analysis in a case such as this. The Commissioner is not
required to use indirect methods of proof to establish the amount
of a gambler’s losses. The evidence the Commissioner wishes to
present and the expense and effort the Commissioner wishes to
spend on any given case lie with the Commissioner. We note,
however, that the Commissioner routinely uses the net worth
method to reconstruct income in unreported income cases. See
Holland v. United States, 348 U.S. 121 (1954).
Furthermore, respondent’s counsel did not understand the
difference between games of skill and games of chance and could
not answer whether Rev. Proc. 77-29, 1977-2 C.B. 538 (the revenue
(continued...)
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Last modified: March 27, 2008