Court Opinion

ID: 9464970
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:31:47.594299+00
Date Added: 2024-06-11T17:38:54.431487
License: Public Domain

SNEED, Circuit Judge
(dissenting):
I respectfully dissent.
As the majority recognize, the limitations of 26 U.S.C. § 165(d) are applicable only if the losses are sustained on wagering transactions engaged in by the Club. The Tax *359Court held that the “shills were gambling on their own account, not on behalf of the club.” Irving Nitzberg, 44 Tax Ct. Mem. Dee. ¶ 75,154 (1975). From this it followed, thought the Tax Court, that the losses were ordinary and necessary expenses of the Club and deductible under 26 U.S.C. § 162(a). Sharing the winnings with the shills was but a means of compensating the shills for their services.
This is not an unreasonable interpretation of the facts as stipulated. The Club’s business was not gambling but rather the rental of seats at a table at which others, including in my opinion the shills, gambled. Its entire gross income consisted solely of rentals of seats other than a small amount derived from the sale of food and beverages. It no more gambled than does one who leases a building to an operator of a casino. The Club merely provided the surroundings, of which the shills were a part, in which others could gamble. The compensation paid shills is no more wagering losses than are seat rentals wagering gains.
The stipulated facts do not reveal whether the arrangement the Club had with its shills could be expected to produce over a taxable year anything other than “an expense.” Perhaps the “cost” to the Club of the shills would always exceed the Club’s “returns” from their gambling over such a period. The record simply does not permit us to say. In any event, I agree with the majority that resolution of that issue is not necessary to the disposition of this case. To invoke the restriction of 26 U.S.C. § 162(d) the Club must have incurred “losses from wagering transactions.” The “costs” incurred by the shills are to the Club the costs of renting seats and any “net return” to the Club by the shills is simply additional seat rentals paid by them to the Club. No “losses from wagering transactions” were incurred by the Club.1 No conflict between 26 U.S.C. § 162 and 165(d) exists; hence, we are not forced to select one over the other. Only 26 U.S.C. § 162 applies.
I would affirm the Tax Court.

. The shills gambled. Their gains with respect to them should be considered from wagering. There is no necessity that such winnings be treated otherwise merely because the absorption of their losses by the Club constitutes an ordinary and necessary expense to the Club.