An Interesting Gambling Tax Court Case
The Tax Court today decided Castagnetta v. Commissioner (T.C. Summary 2006-24). The petitioner claimed that while working as a part-time truck driver that he was also a professional gambler, gambling on horse races in New York. The IRS challenged that, and the case ended up in Tax Court.
The IRS does not like the idea of professional gamblers, and has consistently challenged individuals who claim that they are in that profession. Mr. Castagnetta, though, avoided many of the traps. He kept a detailed log of his bets. He kept detailed back-up information ("speed figures") on horses. He made 4% on his bets (versus the "average" horse racing bettor losing 17% on his bets).
The interesting items that were in the case are:
- The Tax Court states, in a footnote, that not only can a non-professional gambler deduct gambling losses against winnings, he can deduct "other expenses incurred in connection with gambling transactions" (up to the amount of winnings). The Tax Court states that these expenses may include items such as transportation, meals, lodging, admission fees, office supplies, and ATM fees.
- The IRS has, in various appeals cases, stated that a professional gambler must "solely" be engaged in that as a profession. The Tax Court did not come to that conclusion. It noted, "It is clear that in a single taxable year, a taxpayer may be in engaged in more than one trade or business. Curphey v. Commissioner, 73 T.C. 766 (1980); Barrish v. Commissioner, T.C. Memo. 1984-602." But the gambling must be engaged in as "the intended livelihood source" and "for income or profit." Intended livelihood source means the activity that you use to support yourself.
Unfortunately, the case is a summary opinion and cannot be used as a precedent for other cases. But it does give an idea of how the Tax Court feels about gamblers, and is much more positive for gamblers, both professional and amateur, than the IRS' viewpoint. Oh yes, Mr. Castagnetta won and he's considered a professional for the year in question (see Joe Kristan's analysis for more details on that).
Thanks to Joe Kristan and Roth Tax Updates for their plug of our site. Apparently, we both read the decision and posted about it at roughly the same time.
Case: Castagnetta v. Commissioner, T.C. Summary 2006-24
The IRS does not like the idea of professional gamblers, and has consistently challenged individuals who claim that they are in that profession. Mr. Castagnetta, though, avoided many of the traps. He kept a detailed log of his bets. He kept detailed back-up information ("speed figures") on horses. He made 4% on his bets (versus the "average" horse racing bettor losing 17% on his bets).
The interesting items that were in the case are:
- The Tax Court states, in a footnote, that not only can a non-professional gambler deduct gambling losses against winnings, he can deduct "other expenses incurred in connection with gambling transactions" (up to the amount of winnings). The Tax Court states that these expenses may include items such as transportation, meals, lodging, admission fees, office supplies, and ATM fees.
- The IRS has, in various appeals cases, stated that a professional gambler must "solely" be engaged in that as a profession. The Tax Court did not come to that conclusion. It noted, "It is clear that in a single taxable year, a taxpayer may be in engaged in more than one trade or business. Curphey v. Commissioner, 73 T.C. 766 (1980); Barrish v. Commissioner, T.C. Memo. 1984-602." But the gambling must be engaged in as "the intended livelihood source" and "for income or profit." Intended livelihood source means the activity that you use to support yourself.
Unfortunately, the case is a summary opinion and cannot be used as a precedent for other cases. But it does give an idea of how the Tax Court feels about gamblers, and is much more positive for gamblers, both professional and amateur, than the IRS' viewpoint. Oh yes, Mr. Castagnetta won and he's considered a professional for the year in question (see Joe Kristan's analysis for more details on that).
Thanks to Joe Kristan and Roth Tax Updates for their plug of our site. Apparently, we both read the decision and posted about it at roughly the same time.
Case: Castagnetta v. Commissioner, T.C. Summary 2006-24