Specifics Trumps General in Gambling Losses for Taxes

Congress writes the Tax Code. That leads to many situations where there’s conflicting language between two sections of the Code. Section 162(a) allows for the deduction of necessary and ordinary business expenses. Section 165(d) limits gambling losses to the amount of gambling winnings. Which section wins out for a professional gambler who has a losing year?

The Tax Court today looked at the case of a professional gambler who in 2006 had a losing year. On his tax return, he put his gambling income and expenses on a Schedule C. But he did not limit his gambling losses to the amount of wins; rather, he took all his losses and attempted to have a net operating loss. The IRS examined his return, and adjusted the total so that he was limited to the gambling loss that was the amount of wins. The case made its way to the Tax Court. The Court noted,

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 (5th 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 not entitled to deduct his gambling losses that exceed the amount of his gambling gains.

The petitioner also attempted to deduct $2,400 for promotional expenses. However, he submitted no evidence of those expenses and the Court threw out that deduction.

Remember, gambling is a ‘sin’ in the eyes of Congress and professional gamblers are in one of the few professions where you can’t lose…at least, for taxes.

Case: Crawford v. Commissioner, T.C. Memo 2010-54

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