Opinion ID: 1484845
Heading Depth: 1
Heading Rank: 2

Heading: Numbers 3818 and 3819 Robert L. Carnahan

Text: For the taxable years 1937 to 1944, inclusive, the Commissioner determined deficiencies and penalties against Carnahan in the aggregate amount of $146,410.52. Carnahan kept no books or records reflecting his income, except the work papers delivered to his accountant showing gross receipts from joint enterprises with Cohen. The Commissioner's determinations are based upon the theory that since, with noted exceptions, Carnahan was an equal partner with Cohen in the outside activities, their income from common sources was the same. The Commissioner accordingly set up the deficiencies as income not reported corresponding to excess cash expenditures in Cohen's case. Carnahan challenges this method of determination, but the evidence which supports the deficiencies in the Cohen case is equally applicable to him. His principal attack upon the deficiencies arises from the refusal of the Commissioner to allow as deductions personal gambling losses to the extent of partnership gains. Although Carnahan did not testify in his own behalf, he offered the testimony of others to the effect that during the taxable years in question, he sustained large gambling losses at different places over the country, and contended that these losses were deductible to the extent of his gains from the various gambling enterprises, from which he derived his unreported income. See Jennings v. Commissioner, 5 Cir., 110 F.2d 945. The Tax Court sustained the Commissioner's disallowance of these deductions, first, because it was of the opinion that neither Carnahan nor Cohen owned any interest in the gambling enterprises from which they derived the unreported gains. Rather, it was of the opinion that the income was for protection afforded the various gambling establishments against raid and arrest by county and state officers. In that respect, the court stated that all inferences from the situation tend to support the testimony that no `place' could operate in Sedgwick County without paying Cohen. To pay Cohen was to pay Carnahan. According to the undisputed testimony, Cohen bank-rolled and collected the percentages from some of the gambling establishments, while Carnahan bank-rolled and collected from others, but they regularly balanced accounts by payments to each other in cash. As against the contention of the taxpayer that the percentage paid to them from the gambling operations was for bank-rolling the games and standing all losses, the Tax Court observed that it was not likely that anyone operating a gambling establishment would pay as high as 75% of the lucrative earnings for the risk involved. Of course if Carnahan owned no interest in the gambling establishments, he could not deduct his personal gambling losses, to the extent of his gains from those sources. And finally, the court refused to believe part of the testimony supporting the claimed losses. In so doing, it pointed out with respect to a claimed $25,000.00 gambling loss in 1942, that Carnahan merely called his auditor, advising him that he had just lost $25,000.00 gambling. The only supporting evidence of this loss was a letter from Carnahan to his accountant  Carnahan did not testify concerning it, or any other claimed losses. For any or all of the reasons assigned, we think the Tax Court correctly disallowed the claimed deductions.