T.C. Mem o. 2 01 5- 12 8

UNITED STAT ES TAX COURT

JAM ES BONEPARTE, JR., Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 24 52 -1 4. Fi le d J ul y 13 , 20 15
.
Ja m es Bo ne pa rte , Jr., p ro se. Kath le enK. Raup , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION KERRIGAN, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y of $ 13 ,18 7 a nda pe na lty of $ 2,6 37 un de r se ct io n 6 66 2( a) wi th res pe ctto pe ti ti on er’s Fed eral in co m e ta x fo r ta x year 20 10 . Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al Rev enue Co de (Co de ) in effe ctforth e y ear a t i ss ue , andall Ru le- 2 -

[* 2] refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. W e ro un d al l m on et ary am ou nt s t o t he ne ares t d ol la r. Afte r co nc es si on s, th e is su es forco ns id erat io n a re wh ethe r pe ti ti on er: 1 (1 ) was a pr of

es si on al gam

bl er dur in g 2 01 0, en ti tl in g h im to de du cthi s g am

bl in g lo ss es an d e xp en se s o n h is am en de d S ch edul e C, Pro fitor Lo ss Fro m Bu si ne ss ; (2 ) was en ti tl edto de du ct io ns on hi s amend edSch edul e A fo r m ed ic al tra ns po rta ti on ex pe ns es un de r se ct io n 2 13 (a) andfor$2 5,0 00 of g am bl in g l os se s; (3 ) is en ti tl edto de du ctsev eral no nb us in es s b adde bt s; (4) is li ab le fora 10 % ad di ti on al tax un de r se ct io n 7 2( t); an d (5 ) is li ab le foranaccu racy-rela te d p en al ty
un de r se ct io n 6 66 2( a). FINDINGS OF FACT So m e o f th e fac ts are s ti pu la te d a ndare s o fo un d. Pe ti ti on er re cei ve d m ai l ata po stoff

ic e b ox inNew Jer se y

at the ti m e th e p et it io n was fil ed
. Pet it io ne r was em

pl oyed fu ll ti m e b y

th e Po rt Au th or ity

of Ne w Yorkan d New Je rs ey

(Po rt Au th or ity ) as a tu nn el bri dg e ag en t. Durin g 2 01 0 h e g en eral ly

W ith t he ex cep ti on of t he de du ct io n fo r St at e an d l oc al tax es , pet it io ne r 1 co nc ed edth athe was n oten ti tl edto th e d educ ti on s cl ai m edon Sch edul e A, Ite m iz edDedu ct io ns , onhi s o rig in al ly file d F orm 10 40 , U.S. Ind iv idua l In co m e Tax Return. Pe ti ti on er fi le d a n am en de d S ch edul e A alo ng with aFo rm 10 40 X, Am en de d U.S. In di vi du al Inc om e Tax Return, wh ic h re sp on de ntdi d n otacce pt .- 3 -

[* 3] work edfro m

2 p .m . to 10 p.m ., work in g fo urda y s o n, two d ay s o ff, fo urda y s on , two da y s o ff, fi ve da y s o n, two d ay s o ff. Pet it io ne r di d n otm ai nt ai n ape rm an en t re si de nc e. In st ead , he k ep t a st or ag e lo ck er i n New J ers ey wher e h e wou ldke ep hi s p ers on al be lo ng in gs . Gen eral ly, aft er h is sh iftat the Po rt Au th or ity was o ve r, he wou lddri ve ap pr ox im at el y

12 5 m il es to Atl an ti c Ci ty andch eckinat acas in o h ot el to st ay th e ni gh t an d g am

bl e. If h e h adworkat t he Po rt Au th or ity th e n ex t d ay , he wo ul d de pa rt a t 1 0 a .m . to return t o the Po rt Au th or ity to pe rfo rm

hi s dut ie s. Dur in g 2 01 0 p et it io ne r ga m bl edincas in os an d a t h or se race tra ck s. At t he
cas in os hi s p refe rredga m e was ba ccar at , bu t h e al so pl ay edsl ot s as well as o th er tabl e g am es . He gam

bl edpri m ari ly in At la nt ic Cit y , bu t h e al so ga m bl edat o th er ve nu es acro ss New Jer se y , Neva da , Cal ifo rn ia , Arizo na , Marylan d, Fl or id a, an d Co nn ect ic ut . He di d n otke ep a co nt em po ran eo us writte n l og of wi ns an d l os se s fo r an y of h is ga m

bl in g a ct iv it ie s. Ra th er, h e wou ldke ep a runn in g l ed ge r in hi s he ad . Som e o f th e cas in os wou ldals o t rackhi s g am bl in g a ct iv ity , bu t the y

wou ld pr ov id e o nl y

av erag es ov er t im e rat he r th anpre ci se am ou nt s. Whi le pe ti ti on er was gam bl in g i n At lant ic City , he b ecame frien ds with
an ot he r freque ntga m

bl er. The two wou lddi sc us s s tra te gy, andth e fri en d t au gh t- 4 -

[* 4] pe ti ti on er ab ou t s om e as pe ct s o f th e g am bl in g wo rld . They wou ldtra ve l to ge th er t o v ari ou s d es ti na ti on s t o g am bl e. On Au gu st25 , 20 10 , pet it io ne r frac tu redhi s ri gh t wri stwhi le at the Po rt Aut ho rit y . Alth ou gh he was unabl e to workforth e res t o f th e y ear, h e co nt in ue d to rece iv e h is ful l s al ary be cau se he was i njuredonth e job . Peti ti on er’s wri st in jury requ ire d avi si t t o t he em erg en cy roo m on th e d ay

of t he in jury andat l eas t 10 m or e v is it s t o the ho sp it al fortre atm en t. Withres pe ctto hi s wri stin jury, pe ti ti on er’s em

pl oyer’s in su ran ce p ai d h is m ed ic al bi ll s b utno t h is tra ns po rta ti on co st s. Pet it io ne r al so vi si te d t he de nt is t i n 2 01 0. Dur in g 2 01 0 p et it io ne r de fau lt edon a lo anof $ 12 ,17 8 fr om hi s qua li fie d ret ire m en t p lan. Orig in al 20 10 Tax R eturn Pet it io ne r ti m el y

fil edhi s 2 01 0 F orm

10 40 . He rep orte d i nc om e o f $9 2,3 10
. Thi s i nc om e co m

pr is ed$7 6,7 79 fro m

hi s wag es , $3 ,35 3 fr om

hi s t ax refu nd , and $1 2,1 78 as ade em eddi st rib ut io n fr om hi s qua li fie d re ti rem en t p la n. He d idno t rep ort an y

ga m bl in g wi nn in gs . He clai m edva rio us Sch edul e A de du ct io ns to ta li ng $6 6,2 97 . Thes e d educ ti on s i nc lu de d am ed ic al ex pe ns e d educ ti on , a ho m e
m ortg ag e in te res t d educ ti on , a Sta te an d l oc al tax de du ct io n, a c ha rit ab le
co nt rib ut io n d educ ti on , andm is cel la ne ou s d educ ti on s. He d idno t d educ t an y- 5 -

[* 5] ga m bl in g l os se s. He rep orte d ato ta l t ax li ab il ity of $ 4,1 56 . This li ab il ity in cl ud eda 10 % ad di ti on al tax un de r se ct io n 7 2( t) o f $1 ,21 8 fo r th e d eem ed ret ire m en t p lan d is tri bu ti on . On Se pt em

be r 4, 2 01 2, re sp on de ntsen t p et it io ne r a l et te r ex pl ai ni ng th at pe ti ti on er’s 2 01 0 t ax return h adbe ensel ect edforau di t an d re qu es ti ng do cu m en ta ti on to supp ort the cla im edSch edul e A de du ct io ns . Am en de d 2 01 0 Tax Return On Se pt em

be r 30 , 20 13 , aft er the pa rti es ex ch an ge d v ari ou s l et te rs an d do cu m en ts , pet it io ne r m ai le d re sp on de nta Fo rm 10 40 X. Resp on de ntdi d n ot
acce ptth e am en de d re turn . On the Fo rm

10 40 X pet it io ne r cl ai m edth e fo ll owi ng Sch edul e A de du ct io ns : Sche du le A Am ountcla im ed

Med ic al tra ve l exp en se s $1 4,0 43 Tax es 8,8 91 Gam bl in g l os se s- - othe r m is cel lane ou s deduc ti on s 25 ,00 0 Tot al 47 ,93 4- 6 -

[* 6] On the Fo rm

10 40 X pet it io ne r cl ai m edth athe was apro fes si on al ga m bl er with t he fol lo win g S ch edul e C i nc om e an d e xp en se s:

Sch edul e C Am ou ntcla im ed In co m e: Gros s re cei pt s $2 5,0 00 Returns 25 ,00 0 Gros s i nc om e -0- Exp en se s: Car an d t ru ck 23 ,00 0 Add ’l car an d t ru ck 16 ,30 0 Depr eci at io n 2,8 50 Add ’l dep reci at io n 2,8 50 Ins ur an ce 4,8 68 Lega l an d pro fes si on al serv ic es 6,5 00 Offic e 1,0 20 Ren t o f ve hi cl es , m ach in ery, equ ip m en t 27 5 Ren t o f ot he r bu si ne ss pro pe rty 1,1 28 Rep ai rs an d m ai nt en an ce 2,2 08 Sup pl ie s 3,9 00 Trave l 12 ,63 4- 7 - [* 7] Dedu ct ib le m eal s anden te rta in m en t 14 ,16 6 T ot al 91 ,69 9 1 Net i nc om e (91 ,69 9) On the return p et it io ne r rep orts th is am ou ntas $ 91 ,70 7. 1 Pet it io ne r al so de du ct edth e fo ll owi ng am ou nt s as no nb us in es s b adde bt s: Nam e Rel at io ns hi p Am ou nt Erin Lib ur d Frie nd $6 ,50 0 LaSh an a Bo ne pa rte Daug ht er 5,0 00 Keit h B on ep art e Son 2,0 00 Fred di e Bo ne pa rte Bro th er 4,0 00 Mar ci a Ben th am Frie nd 3,4 00 Pet it io ne r cl ai m edzero tax li ab il ity an d re qu es te d t ha t h is cla im ed
ov erp aym en t o f $3 ,42 9 b e ap pl ie d t o 2 00 9. Th is am ou ntdi d n otin cl ud e th e 1 0% ad di ti on al tax res ul ti ng fro m anearl y withd rawal of r et ire m en t m on ey s p ur su an t t o se ct io n 7 2( t). On No ve m

be r 12 , 20 13 , res po nd en t i ss ue d t he no ti ce o f de fic ie nc y . The
no ti ce d is al lo wedpe ti ti on er’s cl ai m edSch edul e A m ed ic al expe ns e d educ ti on , ho m e m ortg ag e in te res t d educ ti on , cha rit ab le co nt rib ut io n d educ ti on , and
m is cel lane ou s d educ ti on s fr om hi s o rig in al return. Re sp on de ntdi d n otdi sp ut e pe ti ti on er’s St at e an d l oc al tax de du ct io n.- 8 -

[* 8] OPINION Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t tho se de te rm in at io ns are erro ne ou s. Ru le 14 2( a)(1 ); Welc h v . Helv eri ng , 29 0 U.S. 1 11 , 11 5 (1 93 3) . The t ax pa y er l ik ewis e b ears th e b ur de n o f pr ov in g h is en ti tl em en t t o de du ct io ns all owe d b y

th e Co de an d o f subs ta nt ia ti ng th e am ou nt s o f it em s un de rlyin g c la im edde du ct io ns . INDOPCO, Inc . v. Co m m is si on er, 5 03 U.S. 79 , 84 (19 92 ); s ec. 1 .60 01 -1 (a), In co m e Tax Reg s. Un de r se ct io n 7 49 1( a), i n c ert ai n ci rcu m st an ces , th e b ur de n o f pr oo f m ay sh iftfro m

th e ta xp ay er t o t he Co m m is si on er. Pet it io ne r ha s n otcla im edor s ho wn tha t h e m eet s the requi rem en ts of s ect io n 7 49 1( a) t o s hi ft t he burd enof p ro of to res po nd en t as to
an y rel ev an t fa ctua l i ss ue . The b ur de n o f pr oo f rem ai ns with p et it io ne r. I. Pro fes si on al Gam

bl er The pa rti es di sa gr ee ab ou t wh ethe r pe ti ti on er was en ga ge d i n t he tra de or bu si ne ss of g am

bl in g. Pe ti ti on er co nt en ds th athe was apro fes si on al ga m bl er an d th atas ares ul t h e is en ti tl edto de du cthi s g am bl in g- rel at edex pe ns es an d l os se s o n hi s Sc he du le C. Res po nd en t d et erm in edth atpe ti ti on er en ga ge d i n g am bl in g a s a ho bb y , no t as a bu si ne ss .- 9 -

[* 9] Sect io n 6 1( a) d efi ne s g ro ss in co m e to m eanall in co m e fro m what ev er so ur ce d eri ve d. Gam

bl in g wi nn in gs are i nc lu dabl e in gro ss in co m e. Ly sz ko wsk i v. Co m m is si on er, T.C. Mem o. 1 99 5- 23 5, af f’d witho utpubl is he d o pi ni on , 79 F.3d 11 38 (3dCir . 19 96 ). Sect io n 1 62 (a) a ll ows de du ct io ns forord in ary an d n eces sa ry ex pe ns es pa id
orin cu rreddu rin g t he tax ab le y ear i n c arrying onan y tra de or b us in es s. If a ta xp ay er i s en ga ge d i n t he tra de or b us in es s o f ga m bl in g, h is lo ss es fro m ga m bl in g, up t o t he am ou nt s o f hi s g ai ns fro m su chtra ns act io ns , are d educ ti bl e in arri vi ng at h is ad

jus te d g ro ss in co m e. See s ecs . 62 (a)( 1) , 16 5( d) . Howev er, ex pe ns es in cu rredwhi le carry in g o n the tra de or b us in es s o f ga m bl in g o th er tha n wag eri ng lo ss es are n otsubjec t t o t he sec ti on 16 5( d) ga m bl in g l os s re st ric ti on . Mayo v. C omm is si on er, 1 36 T.C. 81 , 97 (20 11 ). To b e a p ro fes si on al ga m bl er, the tax pa y er m

us t h av e en ga ge d i n g am

bl in g with t he ob

jecti ve of m ak in g apro fit . Sec. 1 83 (a), (b ), an d (c ); C omm is si on er v . Gro et zi ng er, 4 80 U.S. 23 , 35 (19 87 ); s ec. 1 .18 3- 2( a), In co m e Tax Reg s. Alt ho ug h
a rea so nabl e ex pe ct at io n o f pr of itis no t re qu ire d, the tax pa y er’s p ro fitob jecti ve
m us t b e actua l an d h on es t. Drei cer v . Comm is si on er, 7 8 T.C. 6 42 , 64 4- 64 5 (1 98 2) , aff’d wit ho utpubl is he d o pi ni on , 70 2 F .2d12 05 (D.C. Cir . 19 83 ); s ec. 1.1 83 -2 (a), In co m e Tax Reg s. Whethe r a t ax pa y er h as anactua l an d h on es t p ro fit- 10 -

[* 10 ] ob jecti ve is a qu es ti onof f

actto be an swe redfro m

all of t he rel ev an t fa ct s
an d c irc um st an ces . Hast in gs v. Co m m is si on er, T.C. Mem o. 2 00 2- 31 0; sec . 1.1 83
- 2( a), In co m e Tax Reg s. The pe rti ne ntreg ul at io ns setforth a no ne xh au st iv e li stof f act or s tha t m ay be co ns id eredinde ci di ng whet he r a p ro fitob jecti ve ex is ts . Thes e fac to rs in cl ud e: (1 ) th e m an ne r in whi chth e ta xp ay er ca rri es on th e act iv ity ; (2 ) th e ex pe rti se of t he ta xp ay er o r hi s ad vi se rs ; (3 ) th e ti m e an d e ffo rt e xp en de d b y th e ta xp ay er i n carry in g o n t he act iv ity ; (4 ) th e ex pe ct at io n t ha t as se ts us edinth e act iv ity m ay ap pr eci at e in va lu e; (5) th e su cces s o f th e ta xp ay er i n c arrying on ot he r si m il ar o r di ss im il ar ac ti vi ti es ; (6 ) th e ta xp ay er’s h is to ry of i nc om e o r lo ss es with re sp ectto th e act iv ity ; (7 ) th e am ou ntof o ccas io na l p ro fit s, i f an y , whi chare ea rn ed ; (8 ) th e fin an ci al st atus of t he tax pa y er; an d (9 ) th e el em en ts of p ers on al pl eas ur e o r recr eat io n. Se c. 1.1 83 -2 (b ), In co m e Tax Reg s.; see als o Go la nt y v. Co m mis si on er, 72 T.C. 41 1, 4 26 (19 79 ), aff’d wi th ou t p ub li sh edop in io n, 6 47 F.2d17 0 (9 th Cir
. 19 81 ). No s in gl e fac to r orgro up of f act or s i s d et erm in at iv e. Gol an ty v. Co m m is si on er, 7 2 T.C. at42 6. Whil e th e fo cu s o f th e te stforwhethe r a t ax pa y er en ga ge d i n a n a ct iv ity

with t he in te ntto m ak e a p ro fitis on th e subjec ti ve in te ntof th e ta xp ay er, g reat er wei gh t i s g iv ento ob jecti ve fact s tha n t o t he tax pa y er’s m ere st at em en t o f hi s o r he r in te nt . Sec. 1 .18 3- 2( a), In co m e Tax Reg s.; see als o- 11 -

[* 11 ] St as ewic h v . Comm is si on er, T.C. Mem o. 2 00 1- 30 . A fin al de te rm in at io n i s
m ad e o nl y

aft er a co ns id erat io n o f al l o f th e rel ev an t fa ct s an d c irc um st an ces . W e d o n otbe li ev e itne ces sa ry to an al yze ea chof t he fact or s en um erat edin
se ct io n 1 .18 3- 2( b) , Inc om e Tax Reg s., t o d et erm in e whe th er p et it io ne r en ga ge d i n hi s g am bl in g a ct iv it ie s wi th anactua l an d h on es t o bjec ti ve of m ak in g apro fit
. Rathe r, we fo cu s o n t he fact or s we b el ie ve m or e im po rta ntan d app li cab le inth is
cas e. A. Man ne r in Whi chth e Tax pa y er Carri es On the Acti vi ty The factth ata ta xp ay er carri es on th e act iv ity ina bu si ne ss li ke m an ne r an d
m ai nt ai ns co m

pl et e an d a ccurat e b oo ks an d re co rd s, m ay in di cat e a p ro fitm ot iv e. Id . subp ara. (1 ). Pet it io ne r di d n otm ai nt ai n c om pl et e an d a ccu rat e rec or ds of h is ga m bl in g act iv ity . He tes ti fie d t ha t h e k ep t o nl y a runn in g t ot al inhi s h ead . The ha nd writ te n re co rd s h e p ro vi de d wer e n otke ptco nt em po ran eo us ly butrathe r were crea te d wh il e h is return was be in g aud it ed . He di d n ottes ti fy th athe sp en t an y ti m e h on in g o r ad

jus ti ng hi s s y st em

or a tt em pt in g t o i m

pr ov e h is pro fit ab il ity

by ad op ti ng ne w m etho ds . Accor di ng ly, he di d n otcarry on hi s g am

bl in g a ct iv ity

in a b us in es sl ik e m an ne r. Thi s fa ct orweig hs ag ai ns t p et it io ne r.- 12 -

[* 12 ] B. Exp ert is e o f th e Tax pa y er o r His Adv is ers Prep arat io n fo r th e act iv ity by ext en si ve study

of i ts acce pt edbu si ne ss pr act ic es , or c on su lt at io n wi th th os e who are ex pe rt t he rei n, m ay in di cat e a p ro fit ob jecti ve wher e th e ta xp ay er ca rri es onth e act iv ity inacco rd an ce wi th su ch pr act ic es . Id. s ub pa ra. (2 ). Pet it io ne r te st ifi edth athe sp en t t im e wit h o ne fri en d wh o a ls o fr eque nt ly ga m bl ed . He tes ti fie d tha t the y to okat l eas t o ne tri p t og ethe r an d wo ul d t al k st rat eg y an d t ha t h e was lea rn in g t he “ in s an d o utof h ow t o g am bl e”. Alt ho ug h pe ti ti on er t es ti fie d tha t h e “ crea te d asyste m ” fo r ga m bl in g o n t he ga m e o f ba ccar at , we are n otpe rs ua de d t ha t h e ach ie ve d any lev el of e xp ert is e. See Merki n v . Comm is si on er, T.C. Mem o. 2 00 8- 14 6. Th is fact orweig hs ag ai ns t pe ti ti on er. C. Tax pa y er’s Su cces s i n C arrying On Othe r Si m il ar o r Dis si m il ar Acti vi ti es The factth atth e ta xp ay er h as en ga ge d i n s im il ar ac ti vi ti es inth e p as t an d
co nv ert edth em

fro m unpr of it ab le to pro fit ab le en te rp ris es m ay in di cat e th atth e act iv ity inqu es ti on was e ng ag edinfor pro fit , eve n t ho ug h t he act iv ity is pre se nt ly
unpr of it ab le . Sec. 1 .18 3- 2( b) (5 ), In co m e Tax Reg s.- 13 -

[* 13 ] Pet it io ne r pr ov id edno ev id en ce o f hi st ory of s uc ces s wi th bu si ne ss act iv it ie s o th er tha n wo rk in g a s an em pl oyee of th e Po rt Au th or ity . There is no ev id en ce tha t h is su cces s i n t hi s fi el d p av edth e way forsu cces s as a ga m

bl er. Thi s fa ct or

weig hs ag ai ns t p et it io ne r. D. Tax pa y er’s His to ry of I nc om e o r Los se s

“ A ser ie s o f lo ss es du rin g t he in it ia l o r st artup st ag e o f anact iv ity m ay no t
ne ces sa ril y

be anin di cat io n t ha t the act iv ity is no t en ga ge d i n fo r pr of it .” Id
. subp ara. (6 ). Howev er, i f a t ax pa y er co nt inue s t o s us ta in lo ss es be y on d the pe rio d whi chcu st om ari ly is n eces sa ry to bri ng th e o pe rat io n t o p ro fit ab le st atus , su ch
co nt in ue d l os se s, i f no t ex pl ai nabl e, m ay in di cat e th atth e act iv ity

is no t en ga ge d in forpro fit . Id. The “ go al m us t b e to real iz e a p ro fiton th e en ti re o pe rat io n, whi chpre supp os es no t o nl y futur e n etearn in gs bu t al so su ffi ci en t n etearn in gs to
reco up th e lo ss es whi chha ve m ean whi le be ensu st ai ne d i n t he in te rv en in g years.” Bes se nyey

v. Co m m is si on er, 4 5 T.C. 2 61 , 27 4 (1 96 5) , aff’d, 3 79 F.2d25 2 (2 d C ir. 19 67 ). Pet it io ne r te st ifi edth athe work edat t he Po rt Au th or ity forov er 3 0 years
an d t ha t h e h adbe enga m bl in g fo r ab ou t 1 1 years. He p ro vi de d n o e vi de nc e reg ard in g h is hi st ory

of i nc om e o r lo ss es fro m ga m bl in g. As pe ti ti on er i s the pa rty with t he bu rd enof p ro of

, th is fact orweig hs ag ai ns t h im
.- 14 -

[* 14 ] E. Tax pa y er’s Fi nanc ia l St atus

“ The factth atth e ta xp ay er d oe s n otha ve subs tant ia l i nc om e o r cap it al fro m so ur ces ot he r th anth e act iv ity m ay in di cat e th atanact iv ity

is en ga ge d i n fo r pr of it .” Sec. 1 .18 3- 2( b) (8 ), In co m e Tax Reg s. Subs ta nt ia l i nc om e fro m so ur ces ot he r th anth e act iv ity , parti cu larly if th e lo ss es fro m th e act iv ity

ge ne rat e subs tant ia l t ax be ne fit s, m ay in di cat e th atth e act iv ity

is no t en ga ge d i n fo r pr of it
. Id
. Pet it io ne r earne d $ 76 ,77 9 a s an em pl oyee of th e Po rt Au th or ity

du rin g 20 10 . He der iv edth e b ul k o f hi s i nc om e fro m th e Po rt Au th or ity . If he is pe rm it te d t o d educ t h is ga m bl in g- rel at edex pe ns es fro m hi s Po rt Au th or ity

in co m e, hi s t ax ab le in co m e wil l b e si gn ifi can tl y reduc ed . See Mo or e v . Comm is si on er, T.C. Mem o. 2 01 1- 17 3 (t ax pa y er’s fi na nc ia l s ta tu s d idno t i nd ic at e p ro fitm ot iv e whe n h e d eri ve d b ul k o f in co m e fro m em pl oym en t o ut si de of g am bl in g) . This fact or co un ts ag ai ns t p et it io ne r. F. Elem en ts of P ers on al Ple as ur e o r Rec reat io n The pre se nc e o f pe rs on al m ot iv es incarry in g o n an a ct iv ity m ay in di cat e th atth e act iv ity

is no t en ga ge d i n fo r pr of it , esp eci al ly whe re the re ar e el em en ts of
recr eat io n o r pe rs on al pl eas ur e. Sec. 1 .18 3- 2( b) (9 ), In co m e Tax Reg s.- 15 -

[* 15 ] Pet it io ne r te st ifi edth athe en joy s g am bl in g. Th is fact orweig hs ag ai ns t pe ti ti on er. Co ns id eri ng all th e fac ts an d c irc um st an ces an d wei gh in g t he fact or s an al yzedab ov e, we ho ldth atpe ti ti on er d idno t co nduc t h is ga m bl in g a ct iv ity

ina bu si ne ss li ke m an ne r an d h e d idno t en ga ge inth atact iv ity with t he requi si te pro fit ob jecti ve du rin g t he y ear at i ss ue . Accor di ng ly, we su st ai n re sp on de nt ’s de te rm in at io n t ha t p et it io ne r is no t en ti tl edto de du ct io ns un de r se ct io n 1 62 (a) fo r ga m bl in g- rel at edexpe ns es . II. Sch edul e A Dedu ct io ns On h is am en de d S ch edul e A pe ti ti on er d educ te d m ed ic al trans po rta ti on co st s an d $ 25 ,00 0 o f ga m bl in g l os se s. Re sp on de ntco nt en ds th atpe ti ti on er i s n ot
en ti tl edto eit he r of

th es e d educ ti on s. 2 A. Med ic al Tran sp orta ti on Exp en se Dedu ct io ns Pet it io ne r cl ai m s tha t h e is en ti tl edto de du cthi s tran sp orta ti on co st s fo r
m ed ic al care for20 10 . Res po nd en t d oe s n otdi sp ut e th atpe ti ti on er m ad e se ve ral tri ps to th e h os pi ta l an d t o t he de nt is t’s o ffi ce i n 2 01 0. Ra th er, res po nd en t
co nt en ds th atpe ti ti on er h as no t s ub st an ti at edth e expe ns es un de rlyin g t he Pet it io ne r al so de du ct ed$8 ,89 1 fo r St at e an d l oc al tax es on hi s amend ed 2 Sch edul e A. Thi s d educ ti on is th e sa m e as th e o ne cla im edonhi s o rig in al Sch edul e A, andres po nd en t d oe s n otdi sp ut e it
.- 16 -

[* 16 ] de du ct io ns he cla im edfor th e m il es dri ve n, t ol l fe es , andpa rk in g e xp en se s. Add it io na ll y , itap pe ars th atpe ti ti on er al so de du ct eda pe r di em us in g P ub li cat io n 15 42 , Per Die m

Rat es , for

each da y he wentto th e h os pi ta l. As r es po nd en t di sa ll owe d p et it io ne r’s de du ct io n i n fu ll , we in fer tha t re sp on de ntals o c on te nd s th atpe ti ti on er i s n oten ti tl edto de du ctpe r di em am ou nt s. Sect io n 2 13 (a) a ll ows a de du ct io n fo r expe ns es pa iddu rin g the tax ab le y ear, no t co m pe ns at edby ins ur an ce o r ot he rwis e, fo r m ed ic al care of t he tax pa y er t o t he
ex te ntth atsu chexpe ns es ex ceed7.5 % of t he tax pa y er’s ad jus te d g ro ss in co m e. Of rel ev an ce h ere, the term “ m ed ic al care ” in cl ud es am ou nt s p ai d “ fo r tra ns po rta ti on pri m ari ly for an d e ss en ti al to m ed ic al care ”. Sec. 2 13 (d )(1 )(A) an d (B). Tran sp orta ti on pri m ari ly for an d e ss en ti al to m ed ic al care is de du ct ib le at a
se t m il eag e rat e. The s tand ardm il eag e rat e fo r m ed ic al tra ns po rta ti on was 1 6.5
cen ts pe r m il e fo r 20 10 . Rev . Pro c. 20 09 -5 4, s ec. 2 .01 (3 ), 20 09 -5 1 I.R .B. 93 0. A tax pa y er i s g en eral ly requ ire d t o k eep su ffi ci en t re co rd s t o e nabl e th e Secr et ary to de te rm in e th e ta xp ay er’s co rrec t i nc om e ta x l iabi li ty. Sec. 6 00 1; sec . 1.6 00 1- 1( a), In co m e Tax Reg s. To subs tant iate m ed ic al an d d en ta l ex pe ns es , a ta xp ay er m

us t fu rn is h t he na m e an d a ddres s o f eac h p ay ee, the am ou ntof t he
ex pe ns e, an d t he da te pa id . Sec. 1 .21 3- 1( h) , Inc om e Tax Reg s.- 17 -

[* 17 ] Pet it io ne r cl ai m edit em iz edde du ct io ns for m ed ic al an d d en ta l tran sp orta ti on ex pe ns es of $ 14 ,04 3 fo r th e ta xabl e y ear 2 01 0. He co nt en ds th athe to ok31 tri ps fo r m ed ic al pu rp os es in20 10 an d t ha t fo r eac h o f th es e tr ip s h e dro ve 25 0 m il es ro un d trip fro m

Atl an ti c Ci ty to the ho sp it al or d en ta l o ffi ces , in cu rredpa rk in g fees of $ 20 , andpa idto ll fare s o f $2 5, fo r a t ot al of $ 14 ,18 1 i n t ran sp orta ti on ex pe ns es . He th en“pr o ra te d” th is am ountby m ul ti pl y in g i t b y

0.7 5 t o a rri ve at $1 0,6 36 of m ed ic al tra ns po rta ti on ex pe ns es . Fin al ly, us in g P ub li cat io n 1 54 2, h e al lo tt edhi m se lf a$1 66 pe r di em foreach da y

he tra ve le d t o t he do ct orfora to ta l of $5 ,14 6. He ad de d t hi s amoun t t o t he $1 0,6 36 fora to ta l am ou ntof $ 15 ,78 2. He th enreduc edth is am ou ntby 7.5% o f hi s ad jus te d g ro ss in co m e to arri ve at t he $1 4,0 43 de du ct io n t ha t h e cl ai m edon hi s amend edreturn. Pet it io ne r pr ov id edno rece ip ts or m il eag e lo gs to subs ta nt ia te th e cl ai m ed
m il eag e, to ll s, an d p ark in g e xp en se s. Th ere i s n o e vi de nc e th atth e h an dwr it te n le dg ers th athe di d p ro vi de de ta il in g t he se ex pe nd itur es were p rep ared
co nt em po ran eo us ly or were o th erwi se rel iabl e. See Ad am s v . Commis si on er, T.C. Mem o. 2 01 3- 92
. Add it io na ll y , pet it io ne r is no t en ti tl edto de du ctan y pe r di em ex pe ns es for
co st s i nc urredwhi le tra ve li ng to rece iv e m ed ic al care . Pub li cat io n 1 54 2 p ro vi de s Fed eral pe r di em

all owanc es th atap pl y

on ly to em

pl oyers fo r rei m

bu rs em en ts of- 18 -

[* 18 ] lo dg in g, m eal s, an d i nc id en ta l ex pe ns es . See IRS Publ ic at io n 1 54 2. Bec au se pe ti ti on er i s n otanem pl oyer, su chanall owanc e is in ap pl ic ab le to hi m . Acco rd in gl y , he i s n oten ti tl edto de du ctpe r di em am ou nt s fo r th e d ay s h e tr av el ed to th e h os pi ta l. B. Gam

bl in g Lo ss Dedu ct io n Pet it io ne r al so de du ct ed$2 5,0 00 of “ Gam bl in g Lo ss es ” o n h is Sch edul e A. Res po nd en t co nt en ds th atth is de du ct io n was im pr op er an d t he lo ss es were n ot
subs tant ia te d. Gam bl in g l os se s o f no np ro fes si on al ga m bl ers are d educ ti bl e as anit em iz ed de du ct io n i n a rri vi ng at t ax ab le in co m e. Sec. 6 3( a); Cal va o v . Comm is si on er, T.C. Mem o. 2 00 7- 57 . Howev er, g am bl in g l os se s d educ te d a s an it em iz edde du ct io n o n Sch edul e A are al lo wedon ly to the ex te ntof a ny gam bl in g wi nn in gs . Sec. 1 65 (d ); Sec. 1 .16 5- 10 , Inc om e Tax Reg s. Pet it io ne r di d n otke ep co nt em po ran eo us reco rd s o f hi s wi nn in gs an d l os se s. He te st ifi edth athe ba se d h is rep orte d c as in o wi ns an d c la im edlo ss es on av erag es pr ov id edto hi m

by the cas in os whi chhe co nc ed edwere n ot“ ex actm on et ary am ount [s ]” bu t ra th er were av erag es . He pro vi de d h an dwr it te n i te miz edli st s o f th e d ay s an d a m ou nt s wh ere h e won an d l os t g am bl in g o n h or se raci ng bu t h as no t pr ov id edan y

ad di ti on al do cum en ta ti on to in di cat e whe re thi s i nf orm at io n c am e- 19 -

[* 19 ] fro m

an d t o e st ab li sh it s ac cu racy. Pet it io ne r ha s n otsubs ta nt ia te d h is lo ss es . Furt he r, ev enif h is lo ss es were s ub st an ti at ed , he d idno t re po rt a ny win ni ng s o n h is Sch edul e A. Giv enth atlo ss es are d educ ti bl e o nl y to th e ex te ntof win ni ng s, p et it io ne r wou ldno t b e en ti tl edto de du cthi s p ur po rte d $ 25 ,00 0 o f lo ss es . III. Nonbu si ne ss BadDebt s Pet it io ne r cl ai m s h e is en ti tl edto de du ctsev eral no nb us in es s b adde bt s fo r lo an s tha t h e m ad e to ErinLib ur d, LaSh an a Bo ne pa rte , Keith B on ep art e, Fred di e Bo ne pa rte , andMarc iaBen th am . Res po nd en t co nt en ds th atno ne of t he se pu rp orte d l oa ns are b on a fi de de bt s. Sect io n 1 66 (a)( 1) all ows as ade du ct io n any bo nafid e d eb t tha t b eco m es worth le ss withi n t he tax ab le y ear. Fo r no nb us in es s b adde bthe ldby a tax pa y er ot he r th ana co rp or at io n, s ect io n 1 66 (a)( 1) do es no t ap pl y , andth e ta xp ay er i s al lo weda sh ort-t erm

cap it al lo ss forth e ta xabl e y ear i n wh ic h t he de btbe co m es co m pl et el y wort hl es s. Sec . 16 6( d) (1 ); s ec. 1 .16 6- 5( a)(2 ), In co m e Tax Reg s. A bo nafid e d eb t i s a d eb t tha t ar is es fro m “ a d eb to r-cr ed it orrel at io ns hi p b as edon a va li d a nden fo rceabl e o bl ig at io n t o p ay a fi xe d o r de te rm in ab le su m of m on ey .” Keanv. Co m

m is si on er, 9 1 T.C. 5 75 , 59 4 (1 98 8) ; s ec. 1 .16 6- 1( c), In co m e Tax Reg s. A gi ft i s n otco ns id ereda “ de bt ” fo r pu rp os es of s ect io n 1 66 . Kean v
.- 20 -

[* 20 ] Co m

m is si on er, 9 1 T.C. at59 4. Whethe r a p ur po rte d l oan i s a b on a fi de de bt fo r ta x p ur

po se s i s d et erm in edfro m th e fac ts an d c irc um st an ces of e ach cas e. See Gro ss v. Co m

m is si on er, 4 01 F.2d60 0, 6 03 (9t h C ir. 1 96 8) , aff’g T.C. Mem o. 19 67 -3 1; Dix ie Dair ie s C or p. v . Comm is si on er, 7 4 T.C. 4 76 , 49 3 (1 98 0) . Fact or s in di cat iv e o f a b on a fi de de btin cl ud e whe th er: (1) ev id en ce o f in de bt edne ss ex is ts ; (2 ) an y

sec ur ity is reque st ed ; (3 ) th ere h as be ena de m an d fo r rep aym en t; (4 ) th e p art ie s’ reco rd s re fle ctth e tr an sa ct io n a s a l oa n; (5) any pa ym en ts ha ve be enm ad e; an d (6 ) an y

in te res t was ch arg ed . See Su ndby v. Co m m is si on er, T.C. Mem o. 2 00 3- 20 4. Tran sa ct io ns be twee n fa m il y m em be rs are s ub

ject t o s pe ci al scrut in y

to de te rm in e whe th er a p ur

po rte d l oa n was actua ll y

a gi ft. Ca li gi ur i v
. Co m m is si on er, 5 49 F.2d11 55 , 11 57 (8t h C ir. 1 97 7) , aff’g T.C. Mem o. 1 97 5- 31 9. A trans fer b etweenfam il y m em be rs is pre su m edfortax pu rp os es to be a gi ft. Perry v. Co m m is si on er, 9 2 T.C. 4 70 , 48 1 (1 98 9) , aff’d wit ho utpubl is he d o pi ni on , 91 2 F .2d14 66 (5th C ir. 1 99 0) ; Es ta te of R eyno ld s v . Comm is si on er, 5 5 T.C. 1 72 , 20 1 (1 97 0) . This pre su m pt io n m ay

be reb ut te d b y

anaffi rm at iv e sh owi ng th at th ere e xi st edat t he ti m e o f th e tr an sf er a re al ex pe ct at io n o f rep aym en t an d an in te ntto en fo rce t he co ll ect io n o f th e in de bt edne ss . Esta te of Van An dav.- 21 -

[* 21 ] Co m

m is si on er, 1 2 T.C. 1 15 8, 1 16 2 (1 94 9) , aff’d p er cu ria m , 19 2 F .2d39 1 (2 d C ir. 1 95 1)
. LaSh an a, Keit h, an d F red di e Bo ne pa rte are p et it io ne r’s daug ht er, s on , and br ot he r, res pe ct iv el y . Sin ce the y are al l p et it io ne r’s fam il y m em be rs , a tra ns fer t o an y on e o f th em

is pre su m eda gi ft. Pe ti ti on er t es ti fie d t ha t h e al way s ex pe ct ed th em to pa y hi m ba ck . He di d n otpro vi de an y supp orti ng ev id en ce, i nc lu di ng an y lo ando cu m en ts or d em an ds forrep aym en t, tha t wo ul d i nd ic at e a rea l ex pe ct at io n of rep aym en t an d a n i nt en t t o e nf or ce co ll ect io n. Acco rd in gl y , he h as no t re bu tt ed th e p res um

pt io n a ndth es e p aym en ts are n otbo nafid e lo an s. Neit he r Mar ci a Ben th am

no r Erin Lib ur d was a fam il y m em be r, bu t pe ti ti on er s ti ll m

us t s ho w th atth os e d eb ts were b on a fi de . Peti ti on er t es ti fie d t ha t he alwa y s ex pe ct edrep aym en t. Fo r th e tr an sf er t o M arci a Ben th am , pet it io ne r di d
no t p ro vi de an y

ev id en ce o th er tha n h is tes ti m on y . Peti ti on er fa il edto m eethi s bu rd enwith re sp ectto th is pu rp orte d l oa n. Fo r th e p ur po rte d l oa n t o Eri n Li bu rd , in ad di ti on to tes ti m on y , pet it io ne r pr ov id eda pr om is so ry no te ex ecu te d b y

Mr. Lib ur d a s wel l as ba nkde po si t re co rd s s ho win g tha t M r. Lib ur d h adtra ns ferr ed
m on ey to pe ti ti on er as rep aym en t. The pro m is so ry no te , dat edMarc h 2 8, 2 01 1, st at es th e fo ll owi ng : “ I Erin Lib ur d wi ll be bo rro win g t he am ou ntof $ 7,0 00 fro m Ja m es Bo ne pa rte ”. (Em

ph as is ad de d.) No t o nl y

is th e p ro m is so ry

no te da te d wel l- 22 -

[* 22 ] aft er the clo se of t he 20 10 tax y ear, b utth e und ers co redword s al so in di cat e th atth e lo anha d n oty etbe engra nt edin20 10 . Add it io na ll y , th e b an k d ep os it
reco rd s s ho w th atat t he earl ie stMr. Lib ur d m ad e tr an sf ers to pe ti ti on er i n M ay 20 11 . Taken to ge th er, the ev id en ce d oe s n otsupp ort tha t a b on a fi de de btex is te d in 20 10 , letalo ne th atsu chde btha d b eco m e worth le ss . Pet it io ne r ha s n otm ethi s b ur de n, an d h e is no t en ti tl edto de du ctany of t he pu rp orte d b adde bt s. IV. Sect io n 7 2( t) Ad di ti on al Tax A di st rib ut io n fr om

a qu al ifi edpl ansu chas p et it io ne r’s is ge ne ral ly in cl ud ab le inth e in co m e o f th e d is tri bu te e in th e y ear o f di st rib ut io n. Se c. 40 2( a). If a p art ic ip an t o r be ne fic iary of aqu al ifi edpl anrece iv es a lo anfro m th e p la n, tha t
am ountis tre at edas adi st rib ut io n i n t he y ear r ecei ve d unl es s i t fa ll s i nt o o ne of
se ve ral ex cep ti on s. See sec . 72 (p )(2 ). If a p la n fa il s t o s at is fy th es e requi rem en ts , a d eem eddi strib ut io n wi ll oc cu r atth e fi rs t t im e th os e requi rem en ts are n ot
sa ti sf ie d, ei th er i n fo rm

or i n o pe rat io n. Se c. 1.7 2( p) -1 , Q&A-4 (a), In co m e Tax Reg s. Res po nd en t an d p et it io ne r ag ree t ha t p et it io ne r de fau lt edon a lo anof $1 2,1 78 fro m

hi s qua li fie d re ti rem en t p la n a ndth atpe ti ti on er the refo re re cei ve d
anearl y di st rib ut io n i n 2 01 0.- 23 -

[* 23 ] Sect io n 7 2( t) p ro vi de s fo r a 1 0% a dd it io na l t ax on earl y di st rib ut io ns fro m

a qu al ifi edret ire m en t p lan fo r th e ta xabl e y ear i n wh ic h s uc h a m ou ntis rece iv ed
. Sect io n 7 2( t)( 2) (B) p ro vi de s an ex cep ti on to th is rul e: W ith e xc ep ti on s n ot rel ev an t h ere, an earl y

di st rib ut io n fr om

a qu al ifi edret ire m en t p la n i s n otsubjec t to th e 1 0% a dd it io na l t ax to th e ex te ntitdo es no t ex ceed“ th e am ou ntall owabl e as a d educ ti on un de r se ct io n 2 13 * * * fo r am ou nt s p ai d dur in g t he tax ab le y ear f or
m ed ic al care (de te rm in edwitho utreg ardto whet he r th e * * * [ta xp ay er] ite m iz es de du ct io ns forsu chtax ab le y ear) .” Sect io n 2 13 (a) i n turn a ll ows as ade du ct io n

“ th e expe ns es pa iddu rin g t he tax ab le y ear, n otco m pe ns at edfor

by ins ur an ce o r ot he rwis e, fo r m ed ic al care of t he tax pa y er, h is sp ou se , or ade pe nd en t * * * to th e ex te ntth atsu chexpe ns es ex ceed7.5 pe rcen t o f ad jus te d g ro ss in co m e.” Pet it io ne r do es no t d is pu te th athe rece iv edanearl y di st rib ut io n fr om

a qu al ifi edret ire m en t p lan i n 2 01 0. Ra th er, h e as se rts th atth e ear ly dis tri bu ti on was us edto pa y

hi s cl ai m edm ed ic al tra ns po rta ti on ex pe ns es an d tha t h e fal ls un de r th e ex cep ti on insec ti on 72 (t) (2 )(B) . As di sc us se d s up ra Part I I.A, pet it io ne r is no t
en ti tl edto de du cthi s cl ai m edm ed ic al tra ns po rta ti on expe ns es un de r se ct io n 21 3( a). The refo re, h e d oe s n otfal l u nd er the ex cep ti on insec ti on 72 (t) (2 )(B) an d he is li ab le forth e 1 0% a dd it io na l t ax .- 24 -

[* 24 ] V. Accu racy-Rel at edPen al ty Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r anaccuracy-rela te d pe na lty purs uantto sec ti on 66 62 (a) fo r 20 10 . Sect io n 6 66 2( a) p ro vi de s a p en al ty fo r anun de rp aym en t at tri bu tabl e to ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns withi n t he m ean in g o f se ct io n 6 66 2( b) (1 ). The Co m m is si on er b ears th e b ur de n o f pr oduc ti on reg ard in g t he tax pa y er’s li ab il ity for an y pe na lty . Sec. 7 49 1( c); see als o Hi gb ee v . Commis si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). Once th e Co m m is si on er h as m etth is bu rd en , th e ta xp ay er
m us t p ro vi de pe rs ua si ve ev id en ce tha t the Co m m is si on er’s d et erm in at io n was in co rrec t. See Ru le 14 2( a); Hig be e v . Comm is si on er, 1 16 T.C. at 4 47
. Neg li ge nc e in cl ud es any

fai lu re t o m ak e a rea so nabl e atte m ptto co m pl y with t he pro vi si on s o f th e in te rn al rev enue laws , to ex erci se du e car e, orto do wha t a r eas on ab le an d p ru de ntpe rs on wou lddo un de r th e ci rcu m st an ces . Sec. 66 62 (c); Neel y

v. Co m m is si on er, 8 5 T.C. 9 34 , 94 7 (1 98 5) ; s ec. 1 .66 62 -3 (b )(1 ), In co m e Tax Reg s. Neg li ge nc e al so in cl ud es any fai lu re b y

a ta xp ay er t o k eep ad equa te bo ok s an d re co rd s o r to subs ta nt ia te it em s p ro pe rly. Sec. 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Re sp on de ntha s d em on st rat edth atpe ti ti on er fa il edto ke ep accu rat e rec or ds with re sp ectto hi s cl ai m edpro fes si on al ga m bl in g a ct iv ity , m ed ic al tra ns po rta ti on ex pe ns es , gam bl in g l os se s, b adde bt s, an d u se of e arl y- 25 -

[* 25 ] withd rawnret ire m en t fu nd s. Re sp on de ntha s s ho wn tha t p et it io ne r act ed
ne gl ig en tl y . The accu racy-rela te d p en al ty doe s n otap pl y with re sp ectto an y

po rti on of
anun de rp aym en t fo r whi chitis sh own th atth e ta xp ay er h adreas on ab le cau se an d act edingo odfai th . Sec. 6 66 4( c)(1 ). Pet it io ne r di d n otsh ow re as on ab le cau se for fai li ng to ke ep ad equa te bo ok s an d re co rd s i n o rd er t o s ub st an ti at e it em s p ro pe rly. W e h ol d t ha t p et it io ne r is li ab le fora se ct io n 6 66 2( a) p en al ty for n eg li ge nc e. Any con te nt io ns we ha ve no t ad dr es se d a re i rrel ev an t, m oo t, o r m eri tl es s. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.