1All section references are to the Internal Revenue Code in

effect for the year at issue, unless otherwise indicated.

 

 T.C. Summary Opinion 2009-184

UNITED STATES TAX COURT

JOSE DIAZ CARO, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24720-08S. Filed December 3, 2009.

George L. Willis and Taylor Jensen (specially recognized),

for petitioner.

Nicole C. Lloyd, for respondent.

KROUPA, Judge: This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any
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other court, and this opinion shall not be treated as precedent

for any other case. 

Respondent determined a $15,041 deficiency in petitioner’s

Federal income tax for 2006 and a $3,008 accuracy-related penalty

under section 6662(a). After concessions, we are left to decide

whether petitioner had gambling losses in excess of those allowed

in the deficiency notice. We find that he did.

Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts, the supplemental stipulation of facts,

and their accompanying exhibits are incorporated by this

reference. Petitioner resided in California at the time he filed

the petition. 

Petitioner was a professional gambler who had been betting

on horses for over 20 years. Petitioner carefully preserved each

day’s losing tickets inside that day’s racing program as well as

W-2Gs. Petitioner then recorded the total amounts of losses and

winnings on the front of the program at the end of the day. 

Finally he taped the programs shut, sealing the tickets inside. 

Petitioner kept accurate contemporaneous records. Petitioner

learned to keep accurate records after the Internal Revenue

Service (IRS) audited his return for an earlier year and he

received a no-change letter.
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Petitioner gambled every day that the ponies ran. When he

won, he would often “reinvest” those winnings, losing much or all

of what he had won. Petitioner did not own a home or a car in

2006. He rented an apartment with a friend for 34 years and

often received help from his five grown children in paying his

bills. 

Petitioner provided all of his daily programs and tax

records for 2006 to his return preparer. The return preparer

made several mathematical and computational errors on

petitioner’s tax return for 2006. The return preparer

incorrectly reported petitioner’s gambling income and itemized

deductions, including his gambling losses. The return preparer

never returned petitioner’s records for 2006 despite petitioner’s

repeated requests. He has not yet been able to contact or locate

the return preparer, who provided no forwarding information when

he left the area. 

Respondent received information from third-party gambling

establishments reporting that they had collectively paid

petitioner $329,527 in 2006, which is $70,883 more than

petitioner reported. Respondent did not disallow in the

deficiency notice any of the gambling losses petitioner claimed

on the return for 2006. Petitioner timely filed a petition.
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Discussion

We must decide whether petitioner is entitled to deduct

gambling losses in addition to those reported on the return for

2006. We begin with petitioner’s gambling income. Gross income

includes all income from whatever source derived. Sec. 61(a). 

Gambling winnings are includable in gross income. See Lyszkowski

v. Commissioner, T.C. Memo. 1995-235, affd. without published

opinion 79 F.3d 1138 (3d Cir. 1996). Petitioner concedes that

his preparer incorrectly reported his gambling income. He

contends, however, that his return preparer also incorrectly

reported his gambling losses and that these losses were

sufficient to offset the unreported gambling income. Respondent

argues that petitioner may not deduct any additional losses

because petitioner lacks any records. We disagree.

A taxpayer is entitled to deduct uncompensated losses during

a given tax year. Sec. 165(a). Gambling losses are allowed only

to the extent of gambling gains. Sec. 165(d). A taxpayer must

prove gambling losses sustained during the taxable year to be

entitled to a deduction. Mack v. Commissioner, 429 F.2d 182 (6th

Cir. 1970), affg. T.C. Memo. 1969-26; Briseno v. Commissioner,

T.C. Memo. 2009-67. Where, as here, records are lost, taxpayers

are not entirely without a remedy. This Court may allow a

reasonable amount of deductible losses based on an estimate if

the taxpayer has no records to prove the actual amount of the
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deduction. Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir.

1930); Briseno v. Commissioner, supra. We have done so where we

have been satisfied that a taxpayer has incurred unsubstantiated

gambling losses. See Drews v. Commissioner, 25 T.C. 1354 (1956).

This is a purely factual issue to be decided upon the facts and

circumstances of each case. Green v. Commissioner, 66 T.C. 538,

544 (1976); Fogel v. Commissioner, T.C. Memo. 1955-186, affd. per

curiam 237 F.2d 917 (6th Cir. 1956).

Petitioner habitually kept adequate records of his gambling

losses. He kept the losing tickets and the W-2Gs and would tape

the daily booklet shut each day. His return preparer entered the

records for 2006 incorrectly and then failed to return them to

petitioner. We are therefore unable to determine the exact

amount of petitioner’s gambling losses because of the missing

records. In these circumstances, we may make as close an

approximation of the losses as we can. Cohan v. Commissioner,

supra at 544; Doffin v. Commissioner, T.C. Memo. 1991-114. 

Petitioner was a compulsive gambler who gambled every day

possible. We are confident after hearing his testimony that

petitioner placed as many losing bets as he did winning ones. 

When he did win, he would place more bets, losing most of what he

had won. Petitioner did not own a home or a car. He did not

live a lavish lifestyle. Instead, he often depended on his grown

children for help in paying his bills. We are convinced that
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petitioner sustained unreported gambling losses that were

sufficient to offset his unreported gambling income for 2006. 

Petitioner’s credible and convincing testimony regarding the

extent of his gambling losses, together with the other evidence,

provides a sufficient basis for this decision. See, e.g., Drews

v. Commissioner, supra. We therefore conclude that petitioner is

not liable for a deficiency in tax for 2006. Accordingly, we

also conclude that petitioner is not liable for an accuracyrelated penalty under section 6662(a).

To reflect the foregoing and the concessions of the parties,

Decision will be entered

for petitioner.