                  T.C. Memo. 1996-108



                UNITED STATES TAX COURT



             ROBERT LIBUTTI, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 1042-93.           Filed March 7, 1996.




     P gambled at T, a casino in Atlantic City, New
Jersey, and incurred losses of $4,139,100 in 1987,
$3,080,050 in 1988, and $1,215,900 in 1989. Aside from
these losses, but as an enticement to frequent T, P
received from T "complimentary" goods and services
(comps) totaling $443,278 in 1987, $974,992 in 1988,
and $1,126,856 in 1989. On his Federal income tax
returns, P included these comps in his gross income and
relied on sec. 165(d), I.R.C., to deduct from his gross
income an equal amount of his gambling losses. Held:
Sec. 165(d), I.R.C., allows him to deduct his gambling
losses to the extent of the comps.


Bernard Wishnia, for petitioner.

Daniel K. O'Brien, for respondent.
                                    - 2 -




       LARO, Judge:      This case was submitted to the Court without

trial.     Rule 122(a).    Robert Libutti petitioned the Court to

redetermine respondent's determinations with respect to his 1987,

1988, and 1989 Federal income taxes.         Respondent determined that

petitioner was liable for the following income tax deficiencies,

additions to tax for delinquent filings under section 6651(a)(1),

additions to tax for substantial understatements of income tax

under section 6661, and an accuracy-related penalty for

substantial understatement of income tax under section 6662(a),

(b)(2), and (d):

                                Additions to Tax         Penalty
                                Sec.        Sec.          Sec.
Year         Deficiency      6651(a)(1)     6661          6662

1987          $171,386       $347,673       $42,666        ---
1988           272,298        125,036        68,075        ---
1989           314,792         27,297          ---       $62,958

       Following petitioner’s concession in his opening brief that

he is subject to the additions to tax under section 6651(a)(1),1

we must decide whether petitioner can deduct gambling losses to

the extent of the value of "complimentary" goods and services



       1
       Petitioner states in his brief that he cannot prove the
filing date of his 1987 or 1988 tax return. We consider this
statement as petitioner's concession of the allegation in his
pleading that the notice of deficiency as it relates to 1987 and
1988 is time barred under sec. 6501(a). See Rule 142(a); Mecom
v. Commissioner, 101 T.C. 374, 381-383 (1993) (discussion of the
time bar of sec. 6501(a), including the burden of proof with
respect thereto), affd. without published opinion 40 F.3d 385
(5th Cir. 1994).
                                 - 3 -


(comps) that he received from Trump Plaza Associates, t/a Trump

Plaza Hotel and Casino (Trump).    We hold he can.2   Section

references are to the Internal Revenue Code in effect for the

years in issue.   Rule references are to the Tax Court Rules of

Practice and Procedure.   Dollar amounts are rounded to the

nearest dollar.

                            Background3

     Petitioner resided in Secaucus, New Jersey, when he

petitioned the Court.   He filed 1987 and 1988 Federal income tax

returns on November 20, 1989.4    He filed a 1989 Federal income

tax return shortly after April 15, 1990, and he did so without

receiving an extension of time under section 6081(a).    All of

petitioner's returns were prepared by a certified public

accountant, and petitioner filed them using the status of

"Married filing separate return".    On each return, petitioner

reported profits from his horse brokerage business called Buck

Chance Stables (the Stables), which was conducted as a sole

proprietorship.   Petitioner reported that the Stables' profits

were $3,169,881 in 1987, $785,900 in 1988, and $796,031 in 1989.



     2
       Accordingly, we also hold that petitioner is not liable
for the additions to tax or penalty for substantial
understatements.
     3
       The stipulated facts and the exhibits submitted therewith
are incorporated herein by this reference.
     4
       He also filed an amended 1987 tax return on or about the
same day.
                               - 4 -


     Petitioner gambled extensively.    He played mostly craps, and

he gambled mainly at Trump's casino (the Casino), which was

situated in Atlantic City, New Jersey.   In 1987, petitioner spent

84 days at the Casino, gambled on 75 of these days, made an

average bet of $14,964, and had an overall loss of $4,139,100.

In 1988, petitioner spent 179 days at the Casino, gambled on

148 of these days, made an average bet of $11,526, and had an

overall loss of $3,080,050.   In 1989, petitioner spent 304 days

at the Casino, gambled on 70 of these days, made an average bet

of $9,226, and had an overall loss of $1,215,900.   On many of the

occasions that petitioner played craps at the Casino, his total

bets for one roll of the dice ranged from $50,000 to $100,000.

     As a general practice, Trump, in its sole discretion,

voluntarily transferred comps to its patrons to induce them to

patronize the Casino.   In some instances, but not in the case of

petitioner, the comps were determined by a formula that allowed

each patron to receive approximately 50 percent of Trump's

anticipated win with respect to him or her.5   The formula took

into account a patron's average bet, the hours that he or she

gambled at the Casino, the estimated number of hands that he or

she played per hour, and a factor set by Trump to reflect the

fact that the odds were in its favor.    Trump's senior management

determined the type and amount of petitioner's comps using their


     5
       With respect to petitioner, Trump’s anticipated win was
$1,531,930 in 1987; $1,861,283 in 1988; and $542,050 in 1989.
                                - 5 -


sole discretion, as opposed to a direct application of this

formula.   Trump's payment of the comps to petitioner was

discretionary.

     A summary of petitioner’s comps is as follows:

                 1987

           Automobiles.................... $319,300
           Vacations......................   48,778
           Jewelry........................   75,200
                                            443,278

                 1988

           Automobiles and accessories....    872,920
           Vacations......................     55,560
           Jewelry........................     46,512
                                              974,992

                 1989

           Automobiles and accessories....     806,858
           Premium champagne..............      40,020
           Entertainment tickets..........     279,978
                                             1,126,856

     The automobiles and accessories included five Rolls Royces

with an aggregate value of $916,300, three Ferraris with an

aggregate value of $731,400 (exclusive of additional accessories

of $14,875), one Bentley Corniche valued at $212,000 (exclusive

of a $1,890 phone installed therein), one Mercedes Benz valued at

$60,583, automobile repairs of $12,740, a $14,310 payment by

Trump so that petitioner could trade a Bentley for a Rolls, and a

$34,980 payment by Trump so that petitioner could trade a Bentley

Turbo for a Bentley Corniche.   The vacations included five

European vacations with an average value of $17,568 and one
                                - 6 -


vacation in California valued at $16,500.    The jewelry included a

Rolex watch and bracelet valued at $32,300, a 2.7-carat diamond

valued at $30,000, a bracelet and diamond earrings valued at

$23,426, a bracelet watch valued at $19,800, a tennis bracelet

valued at $12,900, and a diamond bracelet valued at $3,286.     The

champagne included 178 bottles of Cristal Rosé, valued at $225 a

bottle.    The tickets were to theater and sporting events such as

the Super Bowl, the NCAA basketball tournament, boxing events,

and the United States Open in Flushing Meadows, New York.

     Casinos in New Jersey were prohibited from transferring cash

comps to patrons during the subject years.    See N.J. Stat. Ann.

sec. 5:12-102m (West 1988).6   Trump and petitioner used at least


     6
         N.J. Stat. Ann. sec. 5:12-102m (West 1988) provides:

          No casino licensee shall offer or provide any
     complimentary services, gifts, cash or other items of
     value to any person unless:

          (1) The complimentary consists of room, food,
     beverage or entertainment expenses provided directly to
     the patron and his guests by the licensee or indirectly
     to the patron and his guests on behalf of a licensee by
     a third party; or

          (2) The complimentary consists of documented
     transportation expenses provided directly to the patron
     and his guests by the licensee or indirectly to the
     patron and his guests on behalf of a licensee by a
     third party, provided that the licensee complies with
     regulations promulgated by the commission to ensure
     that a patron's and his guests' documented
     transportation expenses are paid for or reimbursed only
     once; or

            (3) The complimentary consists of coins, tokens,
                                                     (continued...)
                               - 7 -


the automobile comps to attempt to circumvent this prohibition.

Trump "purchased" the automobiles on behalf of petitioner, and

petitioner contemporaneously "sold" the automobiles for cash,

most (if not all) of which he gambled at the Casino.   On

November 22, 1991, the New Jersey Casino Control Commission, the

State agency that regulates casinos, held Trump liable (and fined

it $450,000) for nine separate violations of N.J. Stat. Ann. sec.

5:12-102m, stemming from Trump’s “transfer” of automobiles to

petitioner and his daughter.   These automobiles, which had an

aggregate value of $1,650,838, were the automobiles and

accessories that petitioner “received” from Trump during 1988 and

1989, exclusive of the car phone, automobile repairs, and

trade-in charge of $14,310.




     6
      (...continued)
     cash or other complimentary items or services provided
     through a bus coupon or other complimentary
     distribution program approved by the commission or
     maintained pursuant to commission regulation; or

          (4) The complimentary consists of noncash gifts,
     provided that such noncash gifts in excess of $2,000.00
     per trip or such greater amount as the commission may
     establish by regulation provided directly to the patron
     and his guests by the licensee or indirectly to the
     patron and his guests on behalf of a licensee by a
     third party shall be supported by documentation
     regarding the reason the noncash gift was provided to
     the patron and his guests, including where applicable,
     a patron's player rating, to be maintained by the
     casino licensee. For purposes of this paragraph, all
     noncash gifts presented to a patron and the patron's
     guests within any five-day period shall be considered a
     single noncash gift.
                               - 8 -


     Trump issued petitioner a 1987, 1988, and 1989 Form

1099-MISC, Miscellaneous Income, reflecting that it paid him the

above-mentioned amounts of comps as "prizes and awards".

Petitioner's 1987 amended return included in his gross income the

amount of comps shown on the 1987 Form 1099-MISC, and it claimed

that petitioner's total deductions from adjusted gross income

equaled the amount of the comps.    Attached to petitioner's

amended return were:   (1) A copy of the 1987 Form 1099-MISC and

(2) a statement from Trump showing that petitioner's 1987 net

gambling losses at the Casino equaled $4,139,100.    The amount of

comps shown on the 1988 and 1989 Forms 1099-MISC were reported on

petitioner's 1988 and 1989 tax returns, respectively, as "Other

income" from "TRUMP PLAZA ASSOC".    These returns also claimed a

matching miscellaneous itemized deduction (not subject to the

2-percent floor) for "GAMBLING LOSSES".

     Respondent determined that petitioner's gross income for

1987 included the amount shown on the 1987 Form 1099-MISC.7    With

respect to petitioner's 1988 and 1989 taxable years, respondent

determined that petitioner was not entitled to deduct his

gambling losses in the amounts equal to the amounts of the comps.

According to respondent's notice of deficiency, dated

November 12, 1992, "Gambling losses are allowed only to the

extent they offset gains from wagering.    Income you received from


     7
       Respondent's determination did not reflect the fact that
petitioner reported the comps as income on his amended return.
                                 - 9 -


Trump Plaza Associates cannot be treated as 'gains from wagering

transactions' pursuant to Internal Revenue Code Section 165(d)."

                            Discussion

     Legal gambling is a multi-billion-dollar industry that has

proliferated across the country and has become a major source of

adult entertainment.   In an effort to attract the attention of

patrons, gaming establishments routinely offer comps.     In the

instant case, Trump paid more than $2.5 million in comps to

petitioner during the subject years.     The term "comps" is

generally understood to imply "free of charge".     Common sense,

however, makes one strongly suspicious as to whether the comps

received by petitioner were free of charge.     If there is any

truth to the time-tested adage that there is "no free lunch", one

can hardly be surprised that respondent argues that petitioner's

comps are taxable to him.

     Petitioner reported the subject comps as gross income on his

1987 through 1989 Federal income tax returns (including the

amendment to his 1987 return).    Petitioner argues that the comps

are not taxable to him because they are wagering gains which may

be offset by his larger wagering losses.8    See sec. 165(d).

Respondent asserts that the comps are not wagering gains because

they do not have a "strong nexus" to petitioner's wagering


     8
       Petitioner also makes alternative arguments that the comps
are not income. For purposes of deciding the sec. 165(d) issue,
we will assume that the comps are properly includable in gross
income.
                                - 10 -


transactions.   Petitioner bears the burden of proof.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

     Section 165(d) provides that an individual may deduct his or

her "Losses from wagering transactions * * * to the extent of the

gains from such transactions".    Neither the Code nor the

regulations define the phrase “gains from such transactions”.

We apply the "plain, obvious, and rational meaning."      Liddle v.

Commissioner, 103 T.C. 285, 293 n.4 (1994), affd. 65 F.3d 329

(3d Cir. 1995); see also Boyd v. United States, 762 F.2d 1369,

1373 (9th Cir. 1985) (sec. 165(d) interpreted according to its

"ordinary meaning").

     According to Webster's New World Dictionary 551 (3d coll.

ed. 1988), the primary meaning of the word “gain” is “an

increase; addition; specif., a) [often pl.] an increase in

wealth, earnings, etc.; profit; winnings”.     (Brackets in

original.)   A primary meaning of the word “from” is “out of;

derived or coming out of”.     Id. at 542.   The word “wager” means

“bet”, id. at 1500, which, in turn, connotes "an agreement

between two persons that the one proved wrong about the outcome

of something will do or pay what is stipulated", id. at 133.      The

word “transaction” is the noun of the infinitive “to transact”,

which means “to carry on, perform, conduct, or complete

(business, etc.)”.     Id. at 1419.

     Assuming for purposes of applying section 165(d) that the

comps are gross income, petitioner’s comps fit within the plain
                               - 11 -


meaning of the statutory text.   The comps from Trump increased

petitioner’s wealth, and they were derived out of his betting

transactions at the Casino.    The fact that petitioner’s receipt

of the comps bore a close nexus to his gambling transactions at

the Casino cannot be denied.   Petitioner would not have received

the comps from Trump but for the fact that he gambled extensively

at the Casino.   Although petitioner's receipt of the comps did

not directly hinge on the success or failure of his wagers, he

received the comps incident to his direct participation in

wagering transactions.   The relationship between petitioner’s

comps and his wagering is close, direct, evident, and strong.

The comps are sufficiently related to his gambling losses for

purposes of section 165(d).    We hold that petitioner’s comps are

“gains from * * * [wagering] transactions” under section 165(d).

     We recognize that the term "gains from * * * [wagering]

transactions" has sometimes been equated with the term "gambling

winnings".   See Commissioner v. Groetzinger, 480 U.S. 23, 37

(1987) (White, J., dissenting) (full-time gambler may deduct

gambling losses "to the extent of gambling winnings" in computing

adjusted gross income); Collins v. Commissioner, 3 F.3d 625, 631

(2d Cir. 1993) (section 165(d) "only allows gambling losses to

offset gambling winnings"), affg. T.C. Memo. 1992-478.    Our

current holding is not in conflict with these opinions.    We agree

with Justice White and the Court of Appeals for the Second

Circuit that “gains from * * * [wagering] transactions” include
                               - 12 -


“gambling winnings”.    We do not read those opinions, however, to

suggest that “winnings” is the only meaning for the word “gains”.

Section 165(d) refers to “gains”, not “winnings”.    The word

“gains” is broader than the word “winnings”.   Not only does the

word “gains” include “winnings”, it also includes an “increase in

wealth”.   Webster's New World Dictionary, supra at 551.    If the

Congress had wanted to limit the income prong of section 165(d)

to gambling winnings, it would have said so.   Instead, the

Congress used the word “gains”, and, in so doing, allowed

taxpayers to offset their gambling losses against increases to

their wealth that arose out of their wagering transactions.

Given the clarity of section 165(d), the beginning and end of our

inquiry is the statutory text, and we apply the plain and common

meaning of that text.    TVA v. Hill, 437 U.S. 153 (1978); United

States v. American Trucking Associations, Inc., 310 U.S. 534,

543-544 (1940).   As we have learned from the Supreme Court,

“courts must presume that a legislature says in a statute what it

means and means in a statute what it says there.    * * *   When the

words of a statute are unambiguous, * * * judicial inquiry is

complete.”   Connecticut Natl. Bank v. Germain, 503 U.S. 249,

253-254 (1992); citations and quotation marks omitted.

     We recognize the narrow interpretation that this and other

Courts have given the income prong of section 165(d).    See, e.g.,

Allen v. United States, 976 F.2d 975 (5th Cir. 1992); Boyd v.

United States, 762 F.2d 1369, 1373 (9th Cir. 1985); Bevers v.
                                - 13 -


Commissioner, 26 T.C. 1218 (1956).       Our opinion does not depart

from this view.   None of the prior cases dealt with the specific

facts at hand; namely, a gambler who received comps to induce him

to gamble.   The cases dealt mostly with taxpayers who worked in

gambling establishments, as opposed to placing bets in wagering

transactions there, and who received compensation that was

different than ordinary pay.    In Boyd v. United States, supra,

for example, the taxpayer was a professional poker player who

managed a casino's poker room.     The casino did not participate in

the poker games, but it earned money on the games by renting its

facilities to the players for a fee.       The taxpayer played in the

games to attract customers, and he received a portion of the fee.

The Court of Appeals for the Ninth Circuit held that the

taxpayer's portions of the fees were not gains from wagering

transactions under section 165(d).       The Court of Appeals found

controlling that the fees were a form of rental and were not

derived directly from wagering transactions entered into by the

taxpayer himself.   Id. at 1373.    Similarly, in Bevers v.

Commissioner, supra, this Court faced the question of whether

former section 165(d) allowed a dealer to offset his tips against

his gambling losses.   The Court held that it did not.      According

to the Court, the dealer’s tips were gains from his labor as a

dealer, because the tips came to him in his employment as a

dealer.   Id. at 1220-1221.    Once again, the dealer did not

himself place the bet in the wagering transactions; rather, it
                             - 14 -


was the players who placed the bets.    Accord Allen v. United

States, supra.

     In conclusion, we hold that petitioner's comps are "gains

from * * * [wagering] transactions" that may be offset by

wagering losses under section 165(d).    In so holding, we have

considered all arguments made by respondent with respect to

section 165(d), and, to the extent not addressed above, have

found them to be without merit.    In light of our holding, we need

not consider petitioner’s alternative arguments.

     To reflect the foregoing,

                                      Decision will be entered

                                 under Rule 155.
