David J. & Letitia B. Crawford, Petitioner

Gt⁶ cev ter, j T .C . Memo . 2010-5 4

UNITED STATES TAX COURT

DAVID J . AND LETITIA B. . CRAWFORD, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 10413-08 .

Filed March 22, 2010 .

David J . and Letitia B . Crawford, pro sese .

Wesley J . Wong , for respondent .

MEMORANDUM OPINIO N

GERBER, Judge : Respondent determined a $2,230 deficiency i n petitioners' 2006 Federal income tax . The deficiency is attributable to respondent's disallowance of David J . Crawford's (petitioner's) deductions for losses and some expenses fro m gambling . The parties submitted this case with the facts full y

SERVED MAR 2 .2 2010

stipulated under Rule 122 .1 The two issues presented for our consideration are whether petitioner, a professional gambler, may deduct net losses from his gambling activity against other income and whether petitioner has shown entitlement to a $2,40 0 deduction for ". .promotional activities" .

Background Petitioner and his wife, Letitia B . Crawford (Mrs .

Crawford), resided in Nevada at the time their petition was filed .2 For 2006 petitioners filed a joint Form 1040, U .S .- Individual Income Tax Return . Mrs . Crawford reported $41,742 in wage income, and petitioners reported $42 in interest income .

Attached to the 2006 income tax return was petitioner's Schedule C, Profit or Loss From Business, on which he described his profession as "PROFESSIONAL GAMBLER" . Petitioner reported $61,090 in gross income from gambling winnings and the following costs and expenses :

'Rule references are to this Court's Rules of Practice and Procedure, and section references are to the Internal Revenue Code (Code) in effect for the year in issue . No question was raised concerning the shifting of the burden of proof under sec . 7491(a) .

I . 'When their petition was filed, petitioners elected the small tax case procedure under sec . 7463 . The Court granted petitioners' unopposed motion to remove the small tax case . designation .

Cost/Expense Legal and professional services Deductible meals and entertainment Cost of plays at various casinos Promotional activities Live action poker playing at various Amount $36 0 2,18 2 37,23 1 2,40 0 casinos 46,869 Total 89,04 2 Accordingly, petitioner had a net loss from his gambling activity of $27,952 . Petitioners sought to apply the net gambling loss to reduce their other income . That reduction,, along with othe r deductions and personal exemptions would have reduced petitioners' tax liability to zero . Respondent disallowed $25,410 of the net gambling loss .in determining an income tax deficiency, and petitioners petitioned this Court . The $2,542 difference between the $25,410 disallowed and the $27,952 loss claimed is due to respondent's allowance of .petitioner .'s $360 legal and professional services expense and the $2,182 meals and entertainment expense . Respondent disallowed the $2,400 petitioner claimed as a promotional activities expense .

Discussion The legal controversy we consider focuses on the interplay between section 162(a) (which allows deductions for ordinary and necessary business expenses) and section 165(d) (which limit s wagering losses to the amount of wagering income) . Section 162(a) generally allows a deduction for ordinary and necessary expenses sustained in carrying on a trade or business .

Subsection (d) of section 165 specifically addresses' wagering _ 4 _ losses, as follows, : "Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions ."

Petitioner argues that the limitation of section 165(d) does not apply where a taxpayer is a professional gambler ; i .e ., in the business of wagering . Respondent argues that the limitation of section 165(d) applies irrespective of whether the wagering income and losses are in a business or nonbusiness setting .

Petitioner relies on Commissioner v . Groetzinger , 480 U .S .

23 (1987), in support of . his position . In that case the Supreme Court considered a substantially similar factual pattern .

However, the question was whether the taxpayer's gambling loss deduction was an item of tax preference and caused a minimum tax liability under section 56(a) . For purposes of section 56(a) minimum tax preferences, the Supreme Court held that the taxpayer (a full-time gambler) was in a "trade or business" and that his loss deduction was not an item of tax preference and therefore not subject to alternative minimum tax . 3 In a footnote to its Groetzinger opinion the Supreme Court expressed the caution that it was interpreting, the phrase "trade or business" solely with respect to the Code sections being considered .

Id . at 27 n .8 . Respondent does not question . whether petitioner is in the business of wagering . Respondent contends 3In 1982 Congress amended the minimum tax provisions to make it clear that "gambling" loss deductions were excluded from the alternative minimum tax base .

that section 165(d) applies irrespective of whether petitioner was in the business of wagering .

Petitioner is not the first taxpayer to seek to use the Groetzinger holding in support of offsetting gambling losses against other income . See, e .g ., Lyle v . Commissioner , T .C .

Memo . 1999-184, affd . without published opinion 218 F .3d 744 (5t h Cir . 2000) . In each such instance the result has been the same-- the explicit language of section 165(d) trumps the general language of section 162(a) and limits wagering losses to the amount of wagering gains . See, e .g ., Valenti v . Commissioner , T .C . Memo . 1994-483 .

Petitioner presented no argument that would cause this Court to reconsider its prior holdings . We accordingly hold that petitioner is(cid:127)not entitled to deduct his gambling losses that exceed the amount of his gambling gains .

We now turn to the $2,400 deduction that petitioner claimed for "promotional activities" and that respondent disallowed in the notice of deficiency . Respondent contends that petitioner is not entitled to that deduction for failure to show that the expenses were ordinary and necessary and/or that they were actually incurred .

This case was submitted fully stipulated . No facts were stipulated that would show that these expenses were incurred or that they were ordinary and necessary business expenses .

'Accordingly, petitioner has failed to show entitlement to the $2,400 deduction irrespective of the section 165(d) limitation .

See Rule 142(a) ; Higbee v . Commissioner , 116 T .C . 438, 440 (2001) .

To reflect . the foregoing, Decision will be entere d for respondent .