                  T.C. Summary Opinion 2002-120



                     UNITED STATES TAX COURT


         CALVIN E. AND CAROL D. NEYMEYER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 12161-00S.             Filed September 18, 2002.


     Calvin E. and Carol D. Neymeyer, pro se.

     Kathleen C. Schlenzig, for respondent.


     POWELL, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7463.1    The decision to be entered

is not reviewable by any other court, and this opinion should not

be cited as authority.

     Respondent determined a deficiency of $1,065 in petitioners'

1998 Federal income tax.   The issues are whether petitioner Carol

D. Neymeyer (petitioner) is entitled to deduct gambling losses as


1
   Section references are to the Internal Revenue Code in effect
for the year in issue.
                                - 2 -

expenses of a trade or business under section 162, or, in the

alternative, under section 165.2    Petitioners resided in Clinton,

Iowa, at the time the petition was filed.

                             Background

     The facts may be summarized as follows.    Prior to 1998,

petitioner enjoyed “off and on” or “vacation” gambling in Nevada

with her husband.    At that time petitioner was a housewife.    In

1998, petitioner decided that she could “make some money”

gambling.   She began playing the slot machines at a local

riverboat casino (primarily the Mississippi Bell II) and financed

her playing primarily with cash advances from credit cards.      On

two occasions she won sufficient money for the casino to issue

Forms W-2G, Certain Gambling Winnings, to petitioner reporting

winnings of $2,500 and $2,000.3    In September or October 1998,

petitioner “looked at her records” and realized that she was

going into debt.    She decided to quit gambling, get a job, and

pay off the accumulated debt.

     Petitioners did not report the $4,500 on their joint 1998

Federal income tax return.    Petitioners claimed the standard



2
   Respondent adjusted the taxable amount of Social Security
benefit that was received and reported. Petitioners have not
challenged that adjustment.
3
   It appears that petitioner won an additional $2,000 for which
a Form W-2G was issued. Respondent, however, included only
$4,500 in the notice of deficiency and has not asserted an
increased deficiency.
                                - 3 -

deduction for married filing jointly on their 1998 return.         Upon

examination, respondent included the $4,500 in petitioners’ gross

income.   Petitioners contend that petitioner was in the trade or

business of gambling and that her losses exceeded the amount of

income she realized from gambling.

                              Discussion

     Section 61(a) defines gross income to mean all income from

whatever source derived.   Winnings from slot machines are

includable in gross income.    See Bauman v. Commissioner, T.C.

Memo. 1993-112.   Section 162(a) allows deductions for all

ordinary and necessary expenses paid or incurred during the

taxable year in carrying on any trade or business.       The initial

issue here is whether petitioners' gambling activity constituted

a trade or business.   If petitioner were engaged in a trade or

business of gambling, losses, to the extent that they would be

deductible under section 165(d), would be deducted in computing

adjusted gross income.   See sec. 62.      On the other hand, if

petitioner were not in a trade or business of gambling, her

losses would be deductible as an itemized deduction.

     To be engaged in a trade or business within the meaning of

section 162(a), an individual must be involved in the activity

with continuity and regularity and the primary purpose for

engaging in the activity must be for income and profit.

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).       Whether a
                                - 4 -

taxpayer is carrying on a trade or business requires an

examination of all the facts in each case.   Higgins v.

Commissioner, 312 U.S. 212, 217 (1941).

      Petitioner’s gambling activity in 1998 consisted of playing

the slot machines in Iowa on approximately 66 days during the

274-day period from January to September 1998, and taking two

short trips to Nevada where she also played the slot machines.

Prior to commencing the activity, petitioner did not consult with

any professional gamblers or do any research concerning

professional gambling.   She did not know whether she was required

to have a professional gambling license.   Petitioner claims that

she kept records of her winnings and losses in a notebook; she,

however, destroyed those records when she abandoned the gambling

activity in the fall of 1998.   The only records of her activity

are credit card statements showing cash advances at the casinos

that she visited and casino records from the Mississippi Belle

II.

      We do not find that petitioner’s activity was continuous or

regular, and, while petitioner certainly desired to win money,

she did not engage in the activity for the primary purpose of

income and profit.   Indeed, for example, the destruction of her

records cuts across the suggestion that she considered herself to

be in the trade or business of gambling.   Rather, petitioner’s

activity more resembles a diversion than a professional
                                 - 5 -

engagement.   A sporadic activity, hobby, or an amusement

diversion does not qualify as a trade or business.        Commissioner

v. Groetzinger, supra at 35.     In sum, petitioner was not engaged

in the trade or business of gambling in 1998.

     Turning to a wagering loss deduction, we are willing to

assume that petitioner lost more than she won.       Section 165(d),

however, provides that “Losses from wagering transactions shall

be allowed only to the extent of the gains from such

transactions.”   Petitioners claimed the standard deduction on

their 1998 Federal income tax return.       The standard deduction

amount claimed on the return and allowed ($7,950) exceeds the

amount of the gambling losses ($4,500) that would be allowable,

and petitioners have not established that they had other itemized

deductions greater than $3,450, the difference between the amount

allowed and the loss.   Accordingly, petitioners are not entitled

to a separate deduction for gambling losses.       See Umstead v.

Commissioner, T.C. Memo. 1982-573; Carter v. Commissioner, T.C.

Memo. 1976-23.   Respondent’s determination is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent.
