2020 T.C. Memo. 146
Tax Ct.2020Background
- Petitioner (a compulsive gambler, retired insurance agent) did not file a 2014 return; IRS prepared a substitute for return and issued a notice of deficiency based largely on $350,241 in gambling winnings reported on 160 Forms W-2G.
- Petitioner received a $150,000 personal-injury insurance settlement in March 2014 and deposited it into his Industrial Bank account; he testified and records show most of that money was gambled away during 2014.
- Petitioner made 210 on‑premises casino withdrawals in 2014 totaling $240,113 (stipulated to have been used for gambling); bank and account activity show no net increase in wealth from gambling and large year‑end credit card debts.
- Casinos issued W-2G’s for jackpots ≥ $1,200; two casinos kept partial rewards-card records showing some net winnings, but those records were incomplete and biased toward recorded wins because petitioner often did not use his card.
- Expert Mark C. Nicely used casino payout percentages and petitioner’s gambling frequency to conclude (99% confidence) petitioner had substantial net gambling losses (at least $151,690) and that it was virtually impossible petitioner had net profit for 2014.
- Court found petitioner substantiated gambling losses of at least $350,241, but denied a $402 Schedule C deduction for a laptop because petitioner failed to satisfy §274(d) substantiation requirements for listed property.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioner substantiated gambling losses exceeding $350,241 | Coleman argued bank/card withdrawals used at casinos, depleted bank/retirement balances, modest lifestyle, and expert analysis show losses exceeded reported W-2G winnings | Commissioner relied on incomplete casino records (jackpot + rewards-card data) that, in his view, showed net winnings at some casinos and challenged expert assumptions | Court held petitioner met burden: losses at least $350,241; Nicely’s statistical analysis and financial records persuaded the Court that petitioner had net gambling losses that wiped out reported winnings |
| Whether petitioner may deduct $402 for a laptop on Schedule C under §162 and §274(d) | Coleman asserted wife purchased a refurbished laptop for his consulting business and he used it for business at home | Commissioner argued petitioner failed to meet §274(d) heightened substantiation for listed property (no adequate records or corroboration of business use) | Court held deduction denied: petitioner failed to satisfy §274(d) (no adequate records and no exclusive business‑use proof) |
Key Cases Cited
- INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992) (taxpayers bear burden to prove entitlement to deductions)
- Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) (Court may estimate deductible amounts when taxpayer proves expense but not exact amount)
- Williams v. United States, 245 F.2d 559 (5th Cir. 1957) (estimates require some factual basis)
- Vanicek v. Commissioner, 85 T.C. 731 (1985) (taxpayer must introduce sufficient evidence to permit estimation)
- Donovan v. Commissioner, 359 F.2d 64 (1st Cir. 1966) (taxpayer failed to show funds were spent on gambling rather than living expenses)
- Schooler v. Commissioner, 68 T.C. 867 (1977) (insufficient proof that borrowed funds were used for gambling)