                  T.C. Summary Opinion 2005-138



                     UNITED STATES TAX COURT



          THOMAS L. & C. MARLENE PIAS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10304-04S.            Filed September 19, 2005.



     Thomas L. and C. Marlene Pias, pro se.

     James E. Schacht and Mark J. Miller, for respondent.


     POWELL, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.1    The decision to be

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

should not be cited as authority.


     1
          Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year in issue.
                                - 2 -

     Respondent determined a deficiency of $9,934 in petitioners’

2001 Federal income tax.   The issues are whether petitioner

Thomas L. Pias (petitioner) was in a trade or business of

gambling and whether the parties had previously settled the case.

Petitioners resided in Racine, Wisconsin, when the petition in

this case was filed.

                            Background

     The facts may be summarized as follows.    After 28 years,

petitioner retired as an accountant with a local automobile

distributorship in January 2001.    Prior to that time, he had

gambled occasionally at casinos.    In August 2000, petitioner

received the following written advice from the local office of

the Internal Revenue Service:

     A gambler is engaged in a trade or business [of being a]
     “professional gambler” when the gambling activity (1) is
     pursued full time, in good faith, and with regularity, to
     the production of income for a livelihood, and (2) is not a
     mere hobby; resolution of this issue requires an examination
     of the facts in each case.

     Commissioner of Internal Revenue v. Groetzinger
     No. 85-1226
     Supreme Court of The United States

     Subsequent to his retirement, petitioner began going to

casinos 2 or 3 times a week.    This shift in his behavior was

prompted by what petitioner thought was a “lucky streak.”    His

gambling consisted of playing video poker machines.    Petitioner

returned to work in September 2001.
                                 - 3 -

     Petitioner was issued Forms W-2G, Certain Gambling Winnings,

totaling $38,800 by the casinos that he frequented.      On Schedule

C, Profit or Loss From Business, attached to petitioners’ joint

2001 Federal income tax return, petitioner reported this amount

as income and claimed deductions for gambling losses of $68,861,2

tolls of $149, automobile expenses of $421, and other expenses of

$1,157.    Petitioner claimed an overall loss of $31,788 from the

trade or business of gambling.    In the notice of deficiency,

dated March 15, 2004, respondent allowed a deduction for gambling

losses of $38,800 on Schedule A, Itemized Deductions, and

disallowed the balance of the deductions claimed on Schedule C.

The amount of the deficiency was $9,934.      The notice was issued

from the Brookhaven Internal Revenue Service Center (referred to

herein as the Service Center), in Holtsville, New York.

Petitioners mailed their petition to this Court on June 12, 2004.

     By letter dated June 1, 2004, the Service Center proposed a

revised deficiency of $5,681.    Although the statement disallows

gambling losses in excess of gambling income, the proposed

changes in the income and losses do not relate to either the

figures on petitioner’s Schedule C or the statutory notice.      The

letter provides that petitioners must sign and date the “total

agreement statement” and return it.      The total agreement

statement provided:


     2
          Figures are rounded to the nearest dollar.
                                 - 4 -

     I consent to the immediate assessment and collection of any
     increase in tax and penalties plus interest shown * * *. I
     understand that by signing this waiver, I won’t be able to
     contest these changes in the U.S. Tax Court unless
     additional tax is determined to be due for 2001.

     Petitioners did not execute the “total agreement statement”;

an assessment was made; and collection notices were sent to

petitioners.   On September 13, 2004, the assessment was abated in

light of the filing of the petition in this Court.

     Subsequently, petitioner contacted the local Appeals officer

handling the case and expressed his agreement to the deficiency

proposed in the June 1, 2004, letter.     Petitioner was told that

his acceptance was not timely.    Nonetheless, petitioner paid the

revised deficiency of $5,681 which amount was posted to

petitioners’ 2001 account as an “advance payment of determined

deficiency”.

                            Discussion

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

whatever source derived.   Gambling winnings, whether reported or

not, are includable in gross income.     Paul v. Commissioner, T.C.

Memo. 1992-582.   In the case of an individual, section 62(a)

defines adjusted gross income as gross income less certain

deductions, including deductions attributable to a trade or

business carried on by the taxpayer.     Sec. 62(a)(1).   If

petitioner’s gambling activity constituted a trade or business,

his gambling losses would be deductible from gross income in
                                 - 5 -

arriving at the adjusted gross income on Schedule C.       If

petitioner’s gambling activity did not constitute a trade or

business, his gambling losses would be deductible as an itemized

deduction in arriving at taxable income on Schedule A.      Sec.

63(a).   But, regardless whether or not the activity constituted a

trade or business, section 165(d) provides that “Losses from

wagering transactions shall be allowed only to the extent of the

gains from such transactions.”     See also sec. 1.165-10, Income

Tax Regs.     Petitioner does not dispute that section 165(d)

applies here.

     Petitioner claims to be in the trade or business of

gambling, and we are, therefore, faced with the question whether

he is entitled to claim deductions on Schedule C.     In

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987), the Supreme

Court held that “if one’s gambling activity is pursued full time,

in good faith, and with regularity, to the production of income

for a livelihood, and is not a mere hobby, it is a trade or

business”.    We are willing to assume that petitioner did devote

many hours at the casinos playing video poker with some degree of

regularity.    We are not satisfied, however, that petitioner

looked to this activity for a production of income for his

livelihood.    Petitioner’s explanation for his activity was that

at the end of 2000 he “was in what I thought was a lucky streak.”

This explanation rings more of a pastime or a hobby than of an
                                - 6 -

activity for the production of income for a livelihood.   To be

sure, the volume of the activity may have gotten out of hand, but

the underlying purpose for the activity did not change.

Petitioner was not in a trade or business of gambling.

     Petitioner also contends that he settled this case pursuant

to the June 1, 2004, letter.   If we treat the letter as a

prepetition settlement attempt, the requirements of sections 7121

and 7122 (settlement agreements) have not been satisfied.    See

Dormer v. Commissioner, T.C. Memo. 2004-167.    If we treat the

letter as a postpetition offer of settlement, that offer was

contingent on petitioners executing the total agreement

statement, and there is no evidence that they complied with that

requirement.   In this regard, petitioner testified that he did

not know, until October 2004, that section 165(d) disallows

gambling losses that exceed gambling income and that he then told

the Appeals officer in Wisconsin that he “was going to agree to

that assessment and pay the tax and the interest.”   There can be

no question that petitioners had not previously accepted any

offer to settle.    It seems most likely that petitioner was trying

to play both ends against the middle, and when he learned of

section 165(d) he then attempted to resuscitate the offer that

they had ignored.   We do not find that the offer in the June 1,

2004, letter, assuming it constituted a valid offer, was timely

accepted.
                             - 7 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

                                     Decision will be entered

                             for respondent.
