N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT
SHIR AZ LAKHANI, Pe t i tione r-Appe lla

nt,
v. C OM M ISSIONER

OF INTER

NAL REVENUE, R e sponde nt-Appe lle e . No. 14-72576 Ta x C t. No. 24563-11
M EM O R ANDUM *

SHIR AZ LAKHANI, Pe t i tione r-Appe lla

nt,
v. C OM M ISSIONER

OF INTER

NAL REVENUE, R e sponde nt-Appe lle e . Nos. 14-72577
Ta x C t. No. 21212-10

Appe a l from

a De c ision of the Unite d Stat e s Tax C ourt Argue d a nd Subm itte d April 11, 2018 

# FIL ED M AY10 2018 M OLLY C. DW Y ER, CLERK U
. S. CO URT O F APPEALS

* This disposition is not a ppropria te for public at ion a

nd is not pre c e de nt e xc e pt a s provide d

by Ninth C irc uit R

ule 36-3.Pa sa de n a , C a l ifornia

B e fore : SC HR OEDER , C LIFTON, a nd M . SM ITH, C i rc u it Judge s. Shira z Lakha

ni, a n a c c o unta

nt a s we l l a s a

profe ssiona l ga

m b l e r who be ts on horse ra c e s, a

ppe a ls the Tax C ourt’ s de c ision tha t unde r Inte rna l R e ve nue C ode (“ I.R .C .” ) se c tion 165(d), 26 U.S.C . § 165(d), he m ay not de d uc t from his ordina

ry inc o m e that

portion of his losing wa

ge rs re pre se nting wha

t is known a s the tra c k’ s

“ take out.” The ta

ke out is the pe rc e nta ge of a l l m onie s wa g e re d on a horse ra c e tha

t the t ra c k re ta i ns to offse t its busine ss c osts. Se e C a l. B us. & Prof. C o de §§ 19411, 19610. The re le va

nt provision of the

I.R .C . e xpre ssly

provide s tha

t “ [l] osse s from
wa ge ring tra

nsa c tions” are de duc tible “ only to the e xte nt of the ga ins from suc h transa c tions.” I.R .C . § 165(d). La kha ni c o nte nds tha

t the ta ke out is a n e xpe nse to him se p arat e and a

pa rt from the wa ge r itse lf a

nd is the re fore de duc tible a s an

“ ordina ry and ne c e ssa

ry e xpe nse [] ” from

non-ga m bling inc om e unde r I.R .C
. se c t ion 162(a), 26 U.S.C . § 162(a ). This position is not sound. The tra c k ’ s ta ke out, a s m andate d by

C a lifornia la w, c om e s from

a ll of the m one y

wa ge re d , so it is not a

n e xpe nse to the taxpa

y e r se pa ra te and a pa rt from the wa ge r. Se e C a l. B us. & Prof. C ode § 19610. As the Ta x C ourt sa id, “ [E] xpe nse s disc ha rge d from the ta ke out a re e xpe nse s im

pose d
2upon the tra c k, not thebe ttors. . . . [N] one of the take out c an be sa id to c om e from

a winning be ttor’ s wa ge r, whic h in a ll e ve nts m ust be re turne d to [the be ttors] in full a nd with a t le a st a sm a ll profit.” Se e also 4 C a l. Adm in. C ode § 1960. Furthe rm ore , a s the Ta x C ourt re c ogniz e d, “ the ta ke out [c a nnot] be sa id to a dd to the l oss of a

losing be ttor, who lose s the sa m e [am ount] whe the r the ta ke out is 15% . . . or [nothing a

t a ll] on a c c ount of a

m inus pool so de e p a s to deprive the tra c k of a ny ta k e a fte r pay ing a ll winning wa ge rs.” Se ealso C a l. B us. & Prof. C ode § 19613.5. Eve n if the re we re any

doubt a s to whe t

he r the wa ge ring loss provision in
se c t ion 165(d) or them ore ge ne ra l provision re ga rding busine ss e xpe nse s in
se c t ion 162(a) a

p plie s, the m o re spe c ific wa ge ring provision would c ontrol. Se e N itzbe rg v . C

omm’r , 580 F.2d 357, 358 (9th C ir. 1978). The Tax C ourt’ s de c ision he re is a lso c onsiste n t with theTax C ourt’ s de c ision in May o v . C

ommissione r , 136 T.C . 81, 83–84, 97 (2011), re c ogniz ing a distinc tion be twe e n de duc tions for wa ge ring losse s lim ite d to ga ins, a nd the de duc tions a

va i la ble for non-wa ge ring ga

m bling e xpe nse s tha

t c ould be de duc te d from othe r inc om e . In May o , the Tax C ourt a llowe d the taxpa y e r to de duc t, a

m ong othe r e xpe nse s, c ar, offic e , trave l, te le p hone , inte rne t, a dm i ssion, a nd ATM fe e s. 136 T.C . at 83–84, 97. In this c a se , the C om m issione r doe s not c onte st La kha ni’ s
3de duc tions for sim ila r fe e s. The Tax C ourt’ s de c ision in this c a se is c onsiste nt with May o , be c a

use May o did not involve , a s this c a se doe s, the house ta ke out. 1 Lakha ni’ s m otion for re l ie f, file d Se pte m be r 18, 2015, is DE NIE D a s m oot. AFFIRM E D
.

1 C ongre ss re c e ntly

am e nde d se c t ion 165(d), a nd e xpe nse s a

re now tre ate d a s losse s. Se e I.R .C . § 165(d) (W e stla w through Pub. L. No. 115-140). The am e ndm e nt doe s not a ffe c t the taxa ble y e ars at issuehe re . Se e id. 4