Document: 480 U.S. 23 107 S.Ct. 980 94 L.Ed.2d 25 COMMISSIONER OF INTERNAL REVENUE, Petitionerv.Robert P. GROETZINGER. No. 85-1226. Argued Dec. 8, 1986. Decided Feb. 24, 1987. Syllabus For most of 1978, respondent devoted 60 to 80 hours per week parimutuel wagering on dog races with a view earning living from such activity, had no other employment, and gambled solely for his own account. His efforts generated gross winnings $70,000 bets $72,032, net gambling loss the year $2,032. Although he reported this 1978 tax return, did not utilize it in computing adjusted income or claim as deduction. Upon audit, Commissioner Internal Revenue determined that, under Code 1954 (Code) existed was subject minimum because part deduction which entitled an "ite[m] preference." Under Code, items could be lessened by certain deductions that were "attributable trade business carried taxpayer." In redetermining respondent's deficiency, Tax Court held "trade business" gambling, so losses item preference subjecting him 1978. The Appeals affirmed. Held: A full-time gambler who makes wagers account is engaged within meaning §§ 162(a) 62(1). Pp.27-36 771 F.2d 269 (CA7 1985), BLACKMUN, J., delivered opinion Court, BRENNAN, MARSHALL, POWELL, STEVENS, O'CONNOR, JJ., joined. WHITE, filed dissenting opinion, REHNQUIST, C.J., SCALIA, joined, post, p. ---. Albert G. Lauber, Jr., Washington, D.C., petitioner. Carroll Baymiller, Peoria, Ill., respondent. Justice BLACKMUN Court. 1 issue case whether business," 62(1) 1954, amended, 26 U.S.C. (1976 ed. Supp. V).1 we here are concerned calendar 1978; technically, then, look read at time. 2 * There dispute facts. critical ones stipulated. See App. 9. Respondent Robert Groetzinger worked 20 years sales market research Illinois manufacturer when position terminated February During remainder year, busied himself wagering, primarily greyhound races. He tracks Florida Colorado. went track 6 days 48 weeks spent substantial amount time studying racing forms, programs, materials. each these gambling-related endeavors. never placed behalf any person, sold tips, collected commissions placing bets, functioned bookmaker. profession type employment.2 3 kept detailed accounting every day noted record book. $70,000, but bet $72,032; thus realized 4 received $6,498 sources This came interest, dividends, capital gains, salary earned before job terminated. 5 On federal return only nongambling sources. report deduct losses.3 itemize deductions. Instead, computed liability tables. included pursuant § 165(d) 165(d), allowed extent gains. But further law portion gambling-loss operated 56(a) ed.). At time, statutory provisions effect 1976 until 1982, "items preference" deductions, 57(a)(1) (b)(1)(A), 62(1), I).4 7 These determinations produced $2,142 and, adjustments now dispute, resulted total asserted deficiency $2,522 8 sought redetermination United States That court, reviewed decision, two judges dissenting, consequence, constituted determining 82 T.C. 793 (1984). ruling, court adhered its earlier court-reviewed decision Ditunno v. Commissioner, 362 (1983). Ditunno, id., 371, overruled Gentile 65 (1975), where rejected Commissioner's contention (contrary here) therefore self-employment tax. 9 Seventh Circuit (1985). Because conflict among Courts Appeals,5 granted certiorari. 475 1080, 106 1456, 89 714 (1986). II 10 phrase has been section's predecessors many years. Indeed, common appears over 50 sections 800 subsections hundreds places proposed final regulations. slightly longer phrases, "carrying "engaging themselves used less than times Code. concept well-known almost constant presence our tax-law terrain. Despite this, contained definition words general application, regulation issued expounding all purposes.6 Neither broadly applicable authoritative judicial emerged.7 Our task ascertain concerned.8 11 one early cases, Flint Stone Tracy Co., 220 107, 31 342, 55 L.Ed. 389 (1911), Corporation imposed 38 Tariff Act 1909, ch. 6, 36 Stat. 112-117, status being business. It said: " 'Business' very comprehensive term embraces everything about person can employed." U.S., 171, S.Ct., 357. embraced Bouvier Dictionary definition: "That occupies attention labor men purpose livelihood profit." Ibid. also Helvering Horst, 311 112, 118, 61 144, 147, 85 75 (1940). And Frankfurter observed "we assume Congress uses their popular meaning, speech men." Frankfurter, Some Reflections Reading Statutes, 47 Colum.L.Rev. 527, 536 (1947). 12 With comments significant background, turn pertinent cases decided here. Snyder 295 134, 737, 79 1351 (1935), do margin trading held, context, investor, seeking merely increase holdings, Brandeis, Board theretofore ruled taxpayer major transactions stock exchange making treat incurred having sustained course observe facts adduced show "might properly characterized 'trader buying selling securities.' Id., 139, 27 739. observations, thus, dicta, but, use, have drawn distinction between active trader investor. 13 Deputy Du Pont, 308 488, 363, 84 416 (1940), what "ordinary necessary" expenses taxpayer's business, 23(a) 1928, 45 799. ascertaining carrying charges short deductible ordinary necessary assumed activities conserving enhancing estate nevertheless disallowed claimed they "ordinary" "necessary." 493-497, 366-368. concurring joined Reed, join majority. took "open determination," 499, 369, observed: 14 '. . business,' contemplation 23(a), involves holding one's self out others goods services. do. Without elaborating reasons construction unmindful opposing considerations, including appropriate regard administrative practice, I prefer make conclusion explicit instead hypothetical litigation-breeding assumption activities, deducted, constitute 'trade business.' 15 Next Higgins 312 212, 475, 783 (1941). bare brief unanimous salaries incident looking after investments bonds stocks 1932, 179, paid While surely cutting back Flint's broad approach, seemed little more announce since 1918 "the present form [of statute] fixed continued"; "[n]o ever promulgated interprets 'carrying business' "; "business" "not controlling dissimilar inquiry"; must examined; transaction deductible; matter how large continuous extended work required may be, sufficient permit courts reverse Board." 215-218, 477-478. therefore—although devoid analysis setting forth elements, if any, addition profit motive regularity, render activity business—must stand propositions managing preserving operation business.9 Gilmore, 372 39, 44-45, 83 623, 626-627, 570 (1963); Whipple 373 193, 1168, 288 (1963). interest note although write separately, author even cite Pont heed whatsoever content Frankfurter's pronouncement opinion.10 Adoption gloss obviously would disposed favor handily automatically, easy route followed. 16 Less three months later, considered deductibility, expenses, trust fees. opinions same written Black, asset conservation maintenance City Bank Farmers Trust Co. Helvering, 313 121, 896, 1227 (1941); Pyne, 127, 893, 1231 deemed relevant controlling. Again, mention made concurrence Pont. Yet Justices Reed 17 Snow 500, 1876, 40 336 (1974), advanced partnership formed develop invention. audit 1966 174(a)(1) pro rata share partnership's operating disallowed. Sixth upheld disallowance. reversed. Douglas, writing eight participated, "Section 174 enacted dilute some conception 'ordinary necessary' (then 23(a)(1) 1939) adumbrated Mr. said section question 'involves services.' 502-503, 1877-1878. state, 503, 1878, "is narrowly 174." 18 From observations decisions, conclude (1) sure, (Flint ); (2) however, caring investments, though endeavor full (Higgins; Bank; Pyne (3) opposite follow (Snyder (4) attempted upon adopted case; (5) indeed, later "adumbration" (Snow (6) observation, specifically implication, accepted majority once totally ignored. We two-Justice passing moment while respect, achieved ruling. One acknowledge Higgins, stress examining case, affords readily helpful standard, usual sense, decide similar it. Court's give us results, guidance. III 19 Federal state legislation perhaps understandably, recently noticeably favorable endeavors reluctant parity "legitimate" means living. See, e.g., 4401 et seq. Code; Marchetti States, 390 44-46, nn. 88 697, 701-702, 889 (1968).11 confinement provision brought into 23(g) 1934, 689, forward closed door suspected abuses, see H.R.Rep. 704, 73d Cong., 2d Sess., 22 (1934); S.Rep. 558, (1934), served partially differentiate genuine types adverse financial consequences during year. Gambling winnings, isolated losses. realistic enough recognize exist income, primary focus presents "been around" long indicated above, met consistent treatment itself Appeals. Circuit, "has proven difficult troublesome years." F.2d, 271. difficulty ameliorated persistent absence all-purpose definition, statute regulation, frequently Of course, frequency well explanation legislative reluctance take use might affect, confusion, others. 21 Be may, outlined face decisional history positive fairly indicative, result should be. are, indicators. If taxpayer, stipulated done devotes intended source, seem basic concepts fairness (if there much law) demand regarded just retail store proprietor or, come closer categorically, casino operator exchanges. argued, offering services, line demarcation replies indeed supplying well, market; says, comes test proper measure. "It takes gamble." Brief 3. Surely, clearly satisfies adumbration usually does necessarily satisfy business? feel ought qualify trader,12 Brandeis implied held.13 accepts result. Tr. Oral Arg. 17. event, services factor, seems us, absolute prerequisite. 24 satisfied add dimension resolution one, provides "sensible test," urges. Petitioner 36. assist answer obvious positive, capable breeding litigation "goods," "services," "holding out." suspect that—apart gambling—almost gloss.14 everyone passes all. formally reject anyway. income-producing profit-making constitutes law, beginning, distinguished trade, hand, "transactions entered connected trade," other. 1916, 5(a), Fifth, 39 759. "distinguished range producing those satisfying narrow category business." 197, 1171. accept fact involved continuity regularity engaging profit. sporadic hobby, amusement diversion qualify. suggested defer taken Solicitor General, guidance, several decades now, through medium definitive statutes regulations, reason so. defer, instead, Code's normal common-sense Otherwise, here, context tax, too extreme say taxed losses,15 distinctly income. overrule cut pursued good faith, production livelihood, mere concerned. Constant large-scale effort made. Skill applied. less-than-successful hobby fancy occasional amusement. 28 adhere 46 ago, "requires examination case." 217, 478. thought less-than-satisfactory solution, vary. Boyle, What Trade Business?, Lawyer 767 (1986); Note, Business Betting: Proposals Reforming Taxation Gamblers, 759 (1985); Lopez, Defining "Trade Business" Code: Survey Relevant Cases, Fla.St.U.L.Rev. 949 Cf. Comment, Continuing Vitality "Goods Services" Test, U.Balt.L.Rev. 108 rests wide utilization various contexts concern attempt judicially formulate impose situations counterproductive, unhelpful, somewhat precarious overall integrity leave repair revision, needed, doubt, feel, late date, ultimate responsibility rests. Flood Kuhn, 407 258, 269-285, 92 2099, 2105-2113, 32 728 (1972).16 29 judgment 30 ordered. whom THE CHIEF JUSTICE SCALIA join, dissenting. 1982 amendments clear amendments, alternative base equals reduced specified amounts, losses, increased 55(b), 55(e)(1)(A), (1982 III).1 gambler's "deductions attributable taxpayer," hence 165(d). To again subtract (to winnings) double purposes, certainly Congress' intent.2 Thus, amended implicitly teaching business.3 problem amendments. 33 argue, suppose, indication alter Rather, correcting inequity arisen had, enacting predecessor corrected became apparent investor neither then-prevailing nor think avoid harsh case.4 sport applies superseded governed Accordingly, dissent. All references herein 1986, designated 2(a) Reform 100 2095. put way: disputed petitioner fulltime races, employment period, account, extraordinary activity." 793, 795 Respondent, $2,032 Schedule E (Supplemental Income Schedule) itemized scheme Equity Fiscal Responsibility 201(a), 96 411. explicitly excluded base. acknowledges like 4, n. 4. Compare Nipper 746 813 (CA11 1984), aff'g, without TCM 136, ¶ 83,644 P-H Memo TC (1983), Circuit's Gajewski 723 1062 (CA2 1983), cert. denied, 469 818, 105 88, 35 (1984); Estate Cull 1148 (CA6 472 1007, 2701, 86 717 Noto 770 1073 (CA3 598 F.Supp. 440 (NJ 1984). interim reversals Second Circuits Cull, supra, Meredith 49 318, 84,651 Barrish 115, 84,602 trader. Baxter 633 912 (Nev.1986). define limited purposes. 355(b)(2), 355(b)(2) (distribution controlled corporation); 502(b) 513(b), 513(b) (exempt organizations); 7701(a)(26), 7701(a)(26) (defining include performance functions public office"). Judge Friendly ago includes gaining work, scarcely speech." Trent 291 669, 671 1961). caution interpretation confined specific purport construe places. 212 212. roots 23(a)(2) 1939 added 121 1942, 56 819. allows "for management, conservation, property income," overcame ruling kind deductible. change, directly Obviously, though, overcome end. cited parties briefs submitted 28, 29, 40, 61, 18, O.T. 1940, 253. Today, vast gambling. lottery, bingo, betting, jai alai, casinos, slot machines easily mind. buyer seller bet." 763 Levin Ct.Cl. 205, 597 760, 765 (1979); Nubar, 185 584, 588 (CA4 1950), 341 925, 71 796, 95 1357 (1951); Fuld 139 465, 468-469 1943). Moller 721 810 (CA Fed.1983), 467 1251, 104 3534, 839 Purvis 530 1332, 1334 (CA9 1976). Each 5, gloss. courts, involving gamblers, referred gloss, Bessenyey 379 252 (CA2), 931, 293, 283 (1967); Gestrich 681 805 1982), 74 525 (1980); Main Line Distributors, Inc. 321 562 1963), appear creating special class of, rules for, gambler. find warrant "The lost, pay." Lawyer, 754. concedes application goods-or-services-test "visits consequences" Groetzinger, 36, "points unfortunate draftsmanship." Reply 11. possible, 1401-1403 unmixed blessing him. taxes, rest them. stood prior 1986 Consider single individuals filing ending December 31, 1986: $75,000 deductions; B, gambler, A's both $75,000, assessed 20% excess $30,000, 55(a), 55(f)(1)(B), $9,000. Assuming B $150,000, (because business), zero deducted base). treated B's shield against $9,000 pay. interpreted allow [a taxpayer] 'the practical equivalent deduction,' Charles Ilfeld Hernandez, 292 62, 68, 54 596, 598, 78 1127 absent declaration intent Congress." Skelly Oil 394 678, 684, 1379, 1383, 642 (1969). accompanying acquiesced Gentile. 1980-2 Cum. Bull. 1, 39. accepting respondent—which doubt why 1982—I characterization ante, 35, misleading. reduce equal 100% lesser percentage winnings.

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