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Parties Involved:
Commissioner of Internal Revenue Service
Appellee
Won Kyung O
Appellant
Sang J. Park
Appellant

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 11, 2013 Decided July 9, 2013

No. 12-1058

SANG J. PARK AND WON KYUNG O,

APPELLANTS

v.

COMMISSIONER OF INTERNAL REVENUE SERVICE,

APPELLEE

Consolidated with 12-1059

On Appeals from the 

United States Tax Court

Denis M. McDevitt argued the cause for appellants. With 

him on the briefs was Drew M. Bouchard.

John A. Dudeck Jr., Attorney, U.S. Department of 

Justice, argued the cause for appellee. With him on the brief 

was Richard Farber, Attorney. 

Before: TATEL and KAVANAUGH, Circuit Judges, and 

SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge

KAVANAUGH.

USCA Case #12-1059 Document #1445657 Filed: 07/09/2013 Page 1 of 7
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KAVANAUGH, Circuit Judge: After a night of gambling, 

it’s no fun to walk out of the casino a loser. But it’s even 

worse when the IRS, on your way out, tries to tax you on each 

individual bet that you happened to win over the course of 

your losing night. Enter Sang Park, a South Korean 

businessman who gambled away thousands of dollars at slot 

machines on casino outings during his trips to the United 

States – only then to have the IRS seek more in taxes.

The IRS taxes non-resident alien gamblers such as Park 

differently than U.S. citizen gamblers. The relevant 

difference here concerns the period of time over which 

gambling winnings from casino games such as slots are 

measured. Are gamblers required to pay taxes on every 

winning bet – for example, every winning pull of the slot 

machine? Or can they report the overall income – gains 

minus losses – from a session of gambling? The IRS allows 

U.S. citizens to subtract losses from their wins within a 

gambling session to arrive at per-session wins or losses. But 

the IRS has applied a per-bet rule rather than a per-session

rule for non-resident aliens such as Park. 

A simple hypothetical illustrates how U.S. citizens and 

non-resident aliens are taxed differently with respect to 

gambling winnings: Consider two people. The first, a U.S. 

citizen, walks into a casino and sits down to play slots. The 

player first wins $100 but then loses the $100 before leaving

the casino for the night. In that hypothetical, the U.S. citizen 

would have $0 in income to report because the IRS interprets 

the applicable provision of the Tax Code to cover only gains 

measured over a session of gambling.1

 

 1 Resident aliens are taxed in the same manner as U.S. citizens 

for these purposes. 

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The second person, a non-resident alien, also wins $100 

and then loses $100. The non-resident alien is in the same 

financial situation as our U.S. friend. But according to the 

IRS, the non-resident alien has $100 in income to report (the 

$100 he won in the initial bet) because the IRS interprets the 

applicable provision to require non-resident aliens to pay 

taxes on gains from each bet. 

In this case, Sang Park traveled from South Korea to the 

United States and, while here, gambled at slot machines. A 

lot. The IRS contends that Park now must pay taxes on every 

winning pull at the slot machine. Park disputes that

interpretation of the Tax Code. Park contends that the IRS 

should allow him to calculate his winnings on at least a persession basis. It appears that more than a hundred thousand 

dollars turn on the question for Park and the IRS.

The relevant provision of the Tax Code, Section 871,

taxes non-resident aliens for all “interest . . . , dividends, 

rents, salaries, wages, premiums, annuities, compensations, 

remunerations, emoluments, and other fixed or determinable 

annual or periodical gains, profits, and income” received from 

sources in the United States. 26 U.S.C. § 871(a)(1)(A).2

 For 

purposes of this case, the key term in Section 871 is “gains.” 

In Park’s case, the IRS interpreted Section 871 as covering 

every winning pull of the slot machine – a per-bet approach. 

That interpretation was not promulgated in an authoritative 

interpretation that triggers Chevron deference. See United 

States v. Mead Corp., 533 U.S. 218, 228-32 (2001). As the 

 2 Section 871(j) exempts non-resident aliens from taxation on

winnings from blackjack, baccarat, craps, roulette, and big-6 wheel. 

26 U.S.C. § 871(j). 

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IRS acknowledges, we therefore analyze the statutory 

language independently.

We begin our independent analysis by noting that the key

term in interpreting Section 871 – “gains” – also appears in 

Section 165(d), which governs U.S. citizens. Section 165(d) 

provides: “Losses from wagering transactions shall be 

allowed only to the extent of the gains from such 

transactions.” 26 U.S.C. § 165(d). 

The IRS has persuasively interpreted the term “gains” in

Section 165(d) to allow U.S. citizens to measure gains on a 

per-session basis. The IRS stated that “gain or loss may be 

calculated over a series of separate plays or wagers.” 

Memorandum AM2008-11, Office of Chief Counsel, Internal 

Revenue Service 4 (2008) (emphasis added). In the IRS’s 

words: “We think that the fluctuating wins and losses left in 

play are not accessions to wealth until the taxpayer redeems 

her tokens and can definitively calculate” her net gains. Id. 

Because gain or loss may be calculated over a series of 

wagers, a “taxpayer who plays the slot machines[] recognizes 

a wagering gain or loss at the time she redeems her tokens.” 

Id. Therefore, U.S. citizens do not “treat every play or wager 

as a taxable event.” Id. The result is that U.S. citizens can 

measure their gambling winnings and losses on a per-session

basis. See also Shollenberger v. Commissioner, 98 T.C.M. 

(CCH) 667, 2009 WL 5103973, at *2 (Tax Ct. 2009) (same). 

Nothing in the IRS’s Section 165(d) ruling on “gains”

turned on the fact that the gamblers were U.S. citizens. 

Rather, the IRS was trying to sensibly interpret and apply the 

term “gains” to casino gambling. We think that the IRS’s 

reading of the term “gains” in Section 165(d) is the most

sensible interpretation of casino gambling “gains.” The IRS’s 

approach is consistent with the commonsense understanding 

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of what it means to have gambling winnings, and of what it 

means therefore to have “gains.” Moreover, as the IRS itself 

explained, the per-session approach avoids the considerable

administrative and practical difficulties that would arise if 

slots players had to track the wins from every pull of the slot 

machine lever. See id. at *3 (referring to “the practical 

difficulties of tracking the basis of each wager individually in 

a session of like play”). 

Turning back to Section 871, we see again that Section 

871 uses the same key term that Section 165(d) uses –

“gains.” And the logic and analysis of the IRS’s per-session 

approach to U.S. taxpayers in Section 165(d) has no less force 

when applied to non-resident aliens in Section 871. Whether

a gambler is a U.S. citizen or a non-resident alien, it makes 

little sense – as the IRS itself explained in the Section 165(d) 

context – to measure gambling winnings on casino games 

such as slots on a per-bet rather than per-session basis.

The IRS’s only real response is that the Tax Code does 

not allow non-resident aliens to deduct recreational gambling 

losses from their income on their tax returns. See 26 U.S.C. 

§ 873. In other words, once wins and losses are calculated –

whether on a per-bet or per-session basis – non-resident aliens 

may not deduct losses from wins when doing their annual 

income taxes. The IRS therefore concludes that non-resident 

aliens should be required to pay taxes on each winning pull of 

the slot machine lever. 

The IRS’s reasoning is a non sequitur. What the IRS 

says about deductions for non-resident aliens is certainly

accurate as far as it goes, but the point has nothing to do with

the issue in this case. The fact that non-resident aliens may 

not deduct gambling losses from gambling winnings does not 

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tell us how to measure those losses and winnings in the first 

place. 

The IRS also cites Barba v. United States, a 1983 

decision from the Claims Court. 2 Cl. Ct. 674 (1983). But 

Barba is not binding on us, and in any event, it merely ruled 

out a per-year approach to measuring taxable gambling 

winnings. The case did not consider whether to measure 

gains on a per-session basis or a per-bet basis and expressly

left that question open. Id. at 678 (“there is no allegation that 

the losses were from the same transaction”). 

On the question actually before us – the meaning of 

“gains” – we are persuaded that the per-session approach and

not the per-bet approach is the better approach for the reasons

the IRS itself persuasively explained with respect to U.S. 

citizens. We thus decline the IRS’s invitation to read the term 

“gains” in Section 871 to mean something different from what 

it has been interpreted to mean in Section 165(d). See 

Barnhill v. Johnson, 503 U.S. 393, 406 (1992) (“Normally, 

we assume that the same terms have the same meaning in 

different sections of the same statute.”).

We conclude that the relevant provision of the Tax Code, 

Section 871, allows non-resident aliens to calculate winnings 

or losses on a per-session basis.3

 

 3

 The IRS also assessed an accuracy-related penalty against 

Park. See 26 U.S.C. § 6662. Because we conclude that the IRS 

used the wrong methodology to assess Park’s tax liability, we need 

not separately analyze the penalty issue.

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* * *

We reverse the judgment of the Tax Court. Because the 

record does not reflect Park’s per-session winnings, we

remand to the Tax Court so the parties can determine the 

proper amount of Park’s tax liability.

So ordered.

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