Opinion ID: 1748568
Heading Depth: 3
Heading Rank: 1

Heading: Commissioner v. Groetzinger

Text: In Groetzinger, the Supreme Court was asked to determine whether Groetzinger's gambling activity constituted a trade or business under the federal tax code. Groetzinger, 480 U.S. at 24, 107 S.Ct. 980. Because Groetzinger applies to the federal tax code and this case concerns the Minnesota tax code, Groetzinger does not control our decision. But Groetzinger is still persuasive authority, particularly because the Minnesota tax code incorporates sections of the federal tax code, including the trade or business sections. Minn.Stat. § 290.01, subd. 19 (2004) (defining Minnesota net income as the federal taxable income, with specified exceptions); 26 U.S.C. § 62, 162 (providing that trade or business expenses are allowed as a deduction to federal adjusted gross income); see Wilson v. Comm'r of Revenue, 656 N.W.2d 547, 552 (Minn.2003) (When we interpret a clause of our state constitution that is identical to a clause of the federal constitution, a decision of the United States Supreme Court is of inherently persuasive, but not necessarily compelling, force.). Therefore, we will consider the Court's reasoning in Groetzinger. In Groetzinger, the taxpayer, Groetzinger, after losing his job, had begun betting on greyhound dog races full time. 480 U.S. at 24, 107 S.Ct. 980. Groetzinger went to the racetrack six days a week, spending approximately 60-80 hours per week at the racetrack. Id. He had no other employment, regularly studied racing forms, programs, and other materials, and kept a detailed accounting of his wins and losses. Id. at 24-25, 107 S.Ct. 980. But despite all this effort, Groetzinger lost more than he won. Id. at 25, 107 S.Ct. 980. Under the law at that time, Groetzinger was subject to the federal AMT and his losses were not deductible unless they were incurred as part of a trade or business. Id. The United States Tax Court held that Groetzinger's gambling activity qualified as a trade or business, and the Seventh Circuit Court of Appeals affirmed the Tax Court's decision. Id. at 26, 107 S.Ct. 980. On appeal, the Supreme Court affirmed, holding that gambling can constitute a trade or business, even if the gambler/taxpayer does not make a profit. See id. at 33, 107 S.Ct. 980. The Court stated that if a person devotes his full-time activity to gambling, and it is his intended livelihood source, it would seem that basic concepts of fairness    demand that his activity be regarded as a trade or business. Id. The Court then went on to say that resolution of the issue of whether the taxpayer is gambling as a trade or business requires an examination of the facts in each case. Id. at 36, 107 S.Ct. 980 (quoting Higgins v. Comm'r, 312 U.S. 212, 217, 61 S.Ct. 475, 85 L.Ed. 783 (1941)). The Court stated that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify. Id. at 35, 107 S.Ct. 980. Finally, the Court concluded that Groetzinger had met the trade or business standard. The Court said: [I]f one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes with which we are here concerned. Respondent Groetzinger satisfied that test in 1978. Constant and large-scale effort on his part was made. Skill was required and was applied. He did what he did for a livelihood, though with a less-than-successful result. This was not a hobby or a passing fancy or an occasional bet for amusement. Id. at 35-36, 107 S.Ct. 980. The main factors considered by the Supreme Court in Groetzinger were the regularity of Groetzinger's gambling, the effort he exerted, the skill that he applied, and his intent to produce a livelihood via gambling. See id. While Busch's slot machine gambling involved no provable skill, she did gamble 40-60 hours per week, which is with as much or more regularity than traditional employment requires. She also kept scrupulous records and read articles on the computer regarding the use of slot machines. Finally, her intent to make a profit via her gambling activity was acknowledged by the commissioner at the tax court hearing. In Groetzinger, the Court gave much weight to the time and effort distinction; the Court appears to have considered a hobby as something one is involved in part time or as a side activity. Under the Groetzinger factors, Busch's gambling appears to qualify as a trade or business as she gambled full time, made attempts to improve her skill at using slot machines and to apply that skill, kept detailed, businesslike records of her winnings and losses, and engaged in the gambling activity intending to gain a profit and possibly a livelihood.