TAX COURT OPINION

Case: Syd Ginsberg & Michelle Ginsberg
Docket Number: 17920-22S
Judge: Carluzzo
Opinion Type: bench
Filed: 12/27/2023
Pages: 7

United States Tax Court Washington, DC 20217 SYD GINSBERG & MICHELLE GINSBERG, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 17920-22S. ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Chief Special Trial Judge Lewis R. Carluzzo at Las Vegas, Nevada, on November 8, 2023, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for respondent with respect to the deficiency and for petitioners with respect to the section 6662(a) penalty. (Signed) Lewis R. Carluzzo Chief Special Trial Judge Served 12/27/23 1 2 3 4 5 6 7 8 9 10 11 12 3 Bench Opinion by Judge Lewis R. Carluzzo November 8, 2023 Syd Ginsberg & Michelle Ginsberg v. Commissioner of Internal Revenue Docket No. 17920-22S THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion (bench opinion). Section references contained in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period. Rule references are to the Tax Court Rules of Practice and 13 Procedure. 14 15 16 17 18 19 20 21 This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 174. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority, and pursuant to section 7463(b) the decision entered in this case shall not be treated as precedent for 22 any other case. 23 24 Sydney Ginsberg & Michelle Ginsberg appeared unrepresented. Vanessa A. Johnson appeared on behalf of 25 respondent. 1 2 3 4 5 6 7 8 9 At the time the petition was filed, petitioners 4 resided in Nevada. In a notice of deficiency dated June 21, 2022 (notice), respondent determined a deficiency in petitioners' 2019 federal income tax and imposed a section 6662(a) accuracy-related penalty. Respondent now concedes the section 6662(a) penalty. The issues for decision are: (1) whether certain gambling income received by petitioners is includable in their income; and (2) whether 10 and how petitioners are entitled to deduct gambling 11 losses. 12 13 14 15 16 17 18 19 The facts, all of which have been stipulated, and applicable law are easily summarized below. Both petitioners had numerous sources of income during 2019, including the gambling here in dispute. As it turned out, although they enjoyed gambling winnings on some days, by the end of 2019 petitioners' gambling activities generated more losses than winnings, and they maintained sufficient, if not meticulous records to prove 20 it. 21 22 23 24 25 Petitioners' joint 2019 federal income tax return (return) was prepared by a paid income tax preparer. Various items of income are reported on the return, but the return does not include any gambling income. Petitioners did not elect to itemize deductions; 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 instead, they computed the taxable income shown on the 5 return with reference to the standard deduction applicable to married taxpayers who electronic to file jointly. See section 63. Taking into account the numerous information returns showing petitioners' gambling income, respondent increased petitioners' income in the notice at least by the amounts of gambling winnings shown on those information reports. Because the amounts of petitioners' otherwise allowable gambling losses exceeded the amount of the applicable standard deduction, respondent, in effect, allowed an after-the-fact election to itemize deductions. The gambling losses are taken into account in the computation of petitioners' taxable income and deficiency shown in the notice. Respondent's approach, in this regard, actually benefits petitioners, although we doubt they feel in any way benefited from any action taken by respondent in connection with their 2019 federal income 19 tax liability. 20 21 22 23 24 25 According to petitioners, their gambling income should not be includable in their income because the gambling income was fully offset by gambling losses. Petitioners look at the situation from a "bottom-line" approach, if you will. Petitioners' approach provides a simple and efficient way to proceed and is perhaps 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 supported by common sense and common practice, but that is 6 not how it works. Section 61(a) defines gross income to include all income from whatever source derived, and gambling winnings are included in that definition. Coleman v. Commissioner, T.C. Memo. 2020-146 at *12. Taxpayers such as petitioners are entitled to deduct gambling losses only as an itemized deduction in arriving at taxable income, section 63(a); Calvao v. Commissioner, T.C. Memo. 2007-57, and only to the extent of their winnings. Sections 165(d); 1.165-10, Income Tax Regs; Coleman at *12. A taxpayer cannot deduct otherwise deductible gambling losses if the taxpayer claims the standard deduction. See Estate of Chow v. Commissioner, T.C. Memo 2014-49 at *12; Bon Viso v. Commissioner, T.C. Memo 2017-154. See also, sections 62 and 63; United States v. Scholl, 166 F.3d 964 17 (9th Cir. 1999). 18 19 20 21 22 23 24 25 At trial, petitioners suggested that by including their gambling winnings in their income they have been disadvantaged by being subject to a higher marginal income tax rate. We have not gotten that far into the weeds to examine whether the marginal tax rate applicable to the taxable income reported on the return is lower than the marginal tax rate applicable to petitioners' taxable income as show in the notice, 1 2 3 4 5 6 7 8 9 10 11 12 13 although we doubt that to be true. We have, however,, 7 reviewed the notice carefully enough to see that deficiency probably has little to do with any change to petitioners' marginal tax bracket; instead the deficiency results primarily, if not entirely, from an increase to petitioners' taxable income. And that increase in taxable income does not result directly from the manner that respondent has treated petitioners' gambling winnings and losses; the increase results directly from the effective denial of the standard deduction claimed on the return. To the extent this has resulted in a higher marginal tax rate, the result is computational as might be the case with other adjustments to petitioners' income made in the 14 notice. 15 16 17 18 19 20 21 22 23 24 25 Comparing the amount of petitioners' deductible gambling losses against the standard deduction claimed on the return, respondent proceeded by applying the computational method that resulted in the lower amount of the income tax. Stated differently, respondent, in effect, changed petitioners' decision to claim the standard deduction to an "election" to claim itemized deductions. Although, not in the same manner as petitioners would have liked, respondent high school computationally speaking, "netted" petitioners gambling winnings and losses. The increase to petitioners' taxable 1 2 3 4 5 6 7 8 9 income as shown in the notice is in the exact amount of 8 the standard deduction claimed on the return. And petitioners, like all taxpayers, are not entitled to claim a standard deduction in addition to otherwise allowable itemized deductions. To reflect the foregoing, decision will be entered for respondent with respect to the deficiency and for petitioners with respect to the section 6662(a) penalty. 10 This concludes the Court's bench opinion in this 11 proceeding. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Whereupon, at 10:09 a.m., the above-entitled matter was concluded.)