TAX COURT OPINION

Case: Jose Diaz Caro
Docket Number: 24720-08S
Judge: Kroupa
Opinion Type: summary
Filed: 12/03/2009
Pages: 6

T .C . Summary Opinion 2009-184 UNITED STATES TAX COURT JOSE DIAZ CARO, Petitioner v : COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 24720-08S . Filed December 3, 2009 . { George L . Willis and Taylor Jensen (specially recognized) , for petitioner . Nicole C . Lloyd , for respondent . r KROUPA, Judge : This case . was heard pursuant to the provisions of section 74631 of the Internal Revenue Code i n effect at the time the petition was filed . Pursuant to sectiont 7463(b), the decision to be entered is not reviewable by any 'All section references are to the Internal Revenue Code in effect for the year at issue, unless otherwise indicated . SERVED Dec 03 2009 P, -2- 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 . -3- Petitioner gambled everyday that the ponies ran . When h e 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 I I 2006 . He rented an apartment with a'friend for 34'years and(cid:127) often received help from his - five .-grown :,children in ,paying his4 _:Petitioner provided all .of his daily programs and tax' records for 2006 to, his return preparer . - The return prepare r made several mathematical and , computational-er'rors .on- petitioner ' s tax- .return-for 2006 (cid:127). The return preparer incorrectly reported petitioner ' s gambling income and itemizedI deductions , including his gambling losses . The return preparec never returned petitioner' s records for .2006despite petitioner's repeated requests-.- .He has not- yet been able to contact or locat e I. the-return preparer, who provided 'no forwarding information whe n he left the area .: Respondent received= information from third-.party gambling establishments .reporting'that they had collectively paid petitioner $329,527 .1n,,2006,-which is $70,883 more than petitioner reported . Respondent did n.ot disallow in the,, deficiency . notice . any of-the,gambling=losses petitioner claim e d on the return for 2006 . Petitioner'timely filed'a-petition . -4- Discussio n 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 . . 1.969-26 ; 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 -5- deduction . Cohan v . Commissioner, 39 F .2d 540 , 54'4 1 (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 , 25T .C . 1354 ( 1956) . This is a - purely factual -i ssue 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 9l7 '( 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 th e records for 2006 incorrectly and then failed to return them t o i 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 tha t petitioner placed as many losing bets as he did winning ones . When he did wing, he would place more bets, losing most of what he had won . Petitioner did not own a home or a car . He did no t live a lavish lifestyle . Instead, he often depended on his grow n children for help in paying his bills . We are convinced that -6- 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 accuracy- related penalty under section 6662(a) . To reflect the foregoing and the concessions of the parties , Decision will be entered for petitioner .