TAX COURT OPINION

Case: Linda G. Cooks
Docket Number: 21809-17S
Judge: Panuthos
Opinion Type: bench
Filed: 06/14/2019
Pages: 8

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 LINDA G. COOKS, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) ) 21809-17S. ORD E R 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Peter J. Panuthos at San Francisco, California, on May 15, 2019, containing oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Peter J. Panuthos Special Trial Judge Dated: Washington, D.C. June 14, 2019 SERVED Jun 14 2019 Bench Opinion by Special Trial Judge Peter J. Panuthos 3 May 15, 2019 Linda G. Cooks v. Commissioner of Internal Revenue Docket No. 21809-17S 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. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This case was heard as a Small Tax Case pursuant to the provisions of Section 7463 of the Internal Revenue Code in effect when the petition was filed. This bench 1 2 3 4 5 6 7 8 9 10 11 12 13 opinion is made pursuant to the authority granted by 14 15 section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice 16 and Procedure. Section references contained infhis bench 17 OPinion are to sections of the Internal Revenue Code of 18 1986, as amended, and all Rule references are to the Tax 19 Court Rules of Practice and Procedure. 20 21 22 23 24 25 By notice of deficiency dated August 21, 2017, respondent determined a deficiency in petitioner's Federal income tax in the amount of $2,769d.cMM t (cid:16)254A'Ñ The issues for decision by the Court are whether and to what extent the increase in petitioner's gross income requires (1) an adjustment to the taxable portion 1973)4aa-22h0]opera s@escribe net|wwwascritärs;nel 4 of social Security benefits received and (2) an adjustment to the earned income credit claimed and received. The Court finds the following facts based on the stipulated facts and exhibits and testimony of petitioner. Petitioner resided in the State of California when the petition was timely filed. During 2015 and years prior thereto petitioner worked as a substitute teacher in high risk schools. Petitioner was referred to as a "guest teacher". Petitioner began gambling extensively after her 1 2 3 4 5 6 7 8 9 10 sister and mother died in years prior to the year in 11 issue. In 2015 petitioner won jackpots playing slot 12 machines at Casino san Pablo of Lytton Rancheria (casino). 13 14 15 16 The casino issued Forms 1099G reporting that petitioner received gambling income during 2015 in an amount totaling $94,223. On the original 2015 Federal Income Tax Return 17 Petitioner did not report the gambling winnings. 18 Petitioner did report salary of $18,487, pension income of 19 $5,967 and Social Security benefits in the amount of 20 21 22 23 $29,560 and the taxable amount of $5,106. After filing the 2015 return the IRS also credited petitioner with an earned income credit in the amount of $1,527 and a refund for this amount was issued. Upon examination of the 24 original return petitioner agreed that she should have 25 reported the gambling income. As a result she filed an (97(cid:0)540)406-2250|operatins@escribers,netlwwwasc,ibersnet 5 amended return which included the gambling income and also included, on Schedule A, Itemized Deductions, an identical amount in gambling losses. Respondent agrees that petitioner is entitled to the claimed gambling losses as claimed on Schedule A. Respondent however determined that the gambling income results in adjustments to the taxable Social Security benefits and the earned income credit. Petitioner argues that the adjustments are unfair in that the tax system is 1 2 3 4 5 6 7 8 9 10 skewed to benefit the wealthy. 11 12 13 We turn now to the substantive law. In general, the Commissioner's determinations are presumed correct, and the taxpayer bears the burden of 14 Proving that those determinations are erroneous. Rule 15 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). 16 Pursuant to section 7491(a), the burden of proof as to 17 18 19 20 21 22 factual matters shifts to the Commissioner under certain circumstances. Higbee v. Commissioner, 116 T.C. 438, 440- 441 (2001). Petitioner did not allege or otherwise show that she satisfies the requirements of section 7491(a)to shift the burden of proof to the Commissioner. Therefore, 23 petitioner bears the burden of proof. See Rule 142(a). 24 In unreported income cases, the Commissioner 25 must base the deficiency on some substantive evidence that Cribers (Ö7sj406-280) penti s@escribeinet|wwius ribejukt- 6 1 2 3 4 5 6 7 8 9 the taxpayer received unreported income. Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff'g T.C. Memo, 1997-97. If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. Hardy v. Commissioner, 181 F.3d at 1004. The parties stipulated a Form W-2G issued by the casino and petitioner admitted to receiving gambling winnings of $94,223. Thus, the burden shifts to petitioner to establish that respondent's determination 10 adjusting petitioner's taxable Social Security income and 11 12 13 her entitlement to earned income credit are erroneous. Gross income includes all income from whatever source derived, including gambling. See sec. 61; 14 McClanahan v. United States, 292 F.2d 630, 631-632 (5th 15 Cir. 1961). The Internal Revenue Code treats gambling 16 losses in one of two ways. Taxpayers who are 17 "professional gamblers" engaged in the trade or business 18 of gambling may deduct their gambling losses up to the 19 amounts of their gains to arrive at adjusted gross income. 20 21 22 See secs. 62(a) (1), 165(d); Boneparte v. Commissioner, T.C. Memo. 2015-128. In the case of taxpayers not engaged in the trade or business of gambling, such losses are 23 allowable as an itemized deduction, but only to the extent 24 of gains from gambling transactions. Sec. 165(d); 25 McClanahan v. United States, 292 F.2d at 632. p cribers (973)40s-2250]operations@escribersnet|w.vw.escribetsmet 7 Petitioner stipulated that she received gambling winnings in the amount of $94,223 during taxable year 2015. In the notice of deficiency, respondent allowed petitioner a deduction for itemized deductions including gambling losses equal to her gambling winnings. Petitioner does not claim to be in the trade or business of gambling, and nothing in the record suggests otherwise. Thus her gambling losses are deductible only as itemized deductions, not from gross income, in arriving at adjusted 1 2 3 4 5 6 7 8 9 10 gross income. Id. Consequently, petitioner's gambling 11 winnings result in a dollar-for-dollar increase to her 12 13 14 15 16 adjusted gross income. Torpie v. Commissioner, T.C. Memo. 2000-168. Section 86 requires the inclusion in gross income of up to 85% of Social Security benefits received. See Reimels v. Commissioner, 123 T.C. 245,247 (2004), 17 aff'd, 436 F.3d 344 (2nd Cir. 2006); Brady v. 18 Commissioner, T.C. Memo. 2013-1, at *4. The taxable 19 portion of Social Security benefits depends in part on the 20 21 taxpayer's modified adjusted gross income (MAGI). Sec. 86; Jelle v. Commissioner, 116 T.C. 63,71 (2001). The 22 notice of deficiency determined the taxable portion of 23 Petitioner's Social Security benefits based on the 24 25 increase in adjusted gross income and the resulting increase in MAGI. cribers (Ö73)40s-2250 opeíations@escribers;net[wWwasctìb Enet Petitioner's unreported gambling income 8 increased her MAGI, thereby increasing the amount of her taxable Social Security benefits for taxable year 2015. Petitioner has provided no argument as to why respondent's computational adjustments to her taxable So.cial Security benefits is not correct. We therefore sustain respondent's determination as to petitioner's Social Security benefit adjustment. Section 32(a)(1) allows an eligible individual 1 2 3 4 5 6 7 8 9 10 an earned income credit against her income tax liability. 11 Section 32(b) prescribes different percentages and amounts 12 13 14 used to calculate the credit. The amount of the credit is based on the taxpayer's earned income, adjusted gross income, and number of "qualifying children." See sec. 15 32(b),(f); Gomez v. Commissioner, T.C. Memo. 2016-173, at 16 17 18 19 *5-*6. Unfortunately for petitioner, her unreported gambling income increased her adjusted gross income, thereby reducing her allowable earned income credit. The 20 notice of deficiency determined that petitioner's adjusted 21 gross income for 2015 was way too high for her to be 22 eligible for the earned income credit. Once again, 23 Petitioner has provided no argument as to why respondent's 24 25 determination is incorrect. We therefore sustain respondent's determination as to the earned income credit. BEEE (cid:16)042(973)406-2250Jópemtions@escribersnet|w.vw.eséribersnet We acknowledge that the statutory requirements 9 may seem to work a harsh result in a case such as this where an increase in income is accompanied by equivalent losses. However, the Court is obliged to follow the dictates of the law as written, even though one might wish it was more flexible. Michaels v. Commissioner, 87 T.C. 1412, 1417 (1986) ("[W]e are bound by the wording of the statute as enacted and the accompany1ng regulations, when consistent therewith."); Johnson v. Commissioner, 152 T.C. , (slip op. at 13)(Mar. 11, 2019). To reflect the foregoing, Decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:35 a.m., the above-entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cribers (973)406-2250|opeationseescribersnitlwww scribersaiet