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net gambling losses from slot machine play Mr. Gagliardi claimed
for 1999 and 2000 were significantly lower than the amount
calculated by Mr. Nicely, and the amount claimed for 2001 was
within the error range calculated by Mr. Nicely.
Respondent attempted to discredit Mr. Nicely by questioning
the formula Mr. Nicely used and Mr. Nicely’s assumptions24 by
which he determined, in his expert opinion, that there was only
an infinitesimal probability that Mr. Gagliardi won money (i.e.,
net) gambling on slot machines during the years in issue.
23(...continued)
$802,921, and $1,170,140 in 1999, 2000, and 2001, respectively.
See supra p. 14. Accordingly, Mr. Gagliardi’s net losses from
gambling at the casinos on slot machines totaled $1,446,740
($375,360, $532,869, and $538,511 for 1999, 2000, and 2001,
respectively). This, however, does not include the $666,500 of
State lottery winnings petitioner received each year during the
years in issue. Commissioner v. Groetzinger, 480 U.S. 23, 32
n.11 (1987) (characterizing a State lottery as “public gambling”
in a case treating gambling earnings as ordinary income); United
States v. Maginnis, 356 F.3d 1179, 1183 & n.6 (9th Cir. 2004)
(taxpayer’s lottery winnings enter into the sec. 165(d)
calculation as wagering gains that taxpayer’s gambling losses at
the casinos can be applied to in addition to taxpayer’s gambling
winnings at the casinos); see supra p. 14.
24 For example, respondent took issue with the fact that
Mr. Nicely assumed that Mr. Gagliardi played on average 7 hours
per day on days Mr. Gagliardi gambled. We found that on days
when he was at the casinos, Mr. Gagliardi spent at a minimum an
average of 10 hours per day at the casinos. Accordingly, Mr.
Nicely’s assumptions were conservative and reasonable. Using a
lower number resulted in a greater likelihood that Mr. Gagliardi
won money (i.e., net) gambling on slot machines--i.e., if Mr.
Nicely had used 10 hours per day the figure he would have come up
with would have made it even more improbable that Mr. Gagliardi
won money (i.e., net) gambling on slot machines during the years
in issue.
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