                   T.C. Summary Opinion 2001-85



                      UNITED STATES TAX COURT



                   ELDRON U. ERBS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1890-00S.                       Filed June 13, 2001.



     Eldron U. Erbs, pro se.

     James M. Klein and Mark J. Miller, for respondent.



     DINAN, Special Trial Judge:   The proceedings in this case

were conducted pursuant to the provisions of section 7463 of the

Internal Revenue Code in effect at the time the petition was

filed.   The decision to be entered is not reviewable by any other

court, and this opinion should not be cited as authority.    Unless

otherwise indicated, subsequent section references are to the

Internal Revenue Code in effect for the year in issue, and all
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Rule references are to the Tax Court Rules of Practice and

Procedure.

       Respondent determined a deficiency in petitioner’s Federal

income tax of $2,532 for the taxable year 1996.

       The issue for decision is whether petitioner was engaged in

the trade or business of gambling in 1996.

       This case was submitted fully stipulated pursuant to Rule

122.    All of the facts stipulated are so found.                        The stipulations

of fact and the attached exhibits are incorporated herein by this

reference.      Petitioner resided in Oakdale, Wisconsin, on the date

the petition was filed in this case.                     Petitioner’s audit

commenced on July 2, 1998.

       Petitioner is semiretired.                During the year in issue, he was

engaged in a business in which he purchased and sold antiques.

He incurred a loss of $3,415 in this business.                        Also during 1996,

petitioner visited the Ho-Chunk Casino in Baraboo, Wisconsin, on

at least 89 occasions.             Ho-Chunk Casino produced a Player Coin

Report which indicates petitioner had “coin-in” and “coin-out”

amounts during the year of $368,166.95 and $341,530.20,

respectively.        Petitioner made bank withdrawals from automated

teller machines in connection with his Ho-Chunk gambling activity

on 88 separate dates.            The following summarizes on a monthly

basis the number of days he made withdrawals:

       Jan.   Feb.   Mar.   Apr.    May   June    July    Aug.   Sept.    Oct.   Nov.   Dec.

        3     11      3      3      11     6       9       13    10       17     2      0
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We treat these numbers as the approximate number of times

petitioner visited the casino in each month.   He would normally

visit the casino during late evening and early morning hours,

averaging 9 hours per visit.

     Petitioner received six Forms 1099 in 1996 for gambling

winnings.   On his 1996 Federal income tax return, he reported the

amounts indicated on the Forms 1099 as his only winnings from

gambling.   He reported this income of $10,538 on Schedule C,

Profit or Loss From Business, claiming no cost of goods sold or

expenses other than gambling losses of $10,538, resulting in zero

net profit.   Petitioner reported $27,865 in adjusted gross

income, consisting of the following:

        IRA distributions                  $26,600
        Social Security benefits             3,052
        Interest                             1,628
        Business loss (antique sales)       (3,415)
        Adjusted gross income               27,865

In addition, petitioner received $9,530 in nontaxable net Social

Security benefits.   The occupation stated on his return was

“retailer”.

     Respondent determined that petitioner’s gambling activity

was not an activity entered into for profit.   Accordingly,

respondent recharacterized petitioner’s gambling income and

determined that petitioner’s gambling losses were deductible as

an itemized deduction rather than as a trade or business expense.

Respondent also determined that petitioner was entitled to
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itemized deductions in lieu of the claimed standard deduction and

allowed petitioner an additional itemized deduction for the

payment of taxes.   Finally, a computational adjustment was made

to the amount of taxable Social Security benefits.   Petitioner

disputes respondent’s determination that he was not engaged in

the trade or business of gambling.

     Ordinary and necessary expenses paid in carrying on a trade

or business generally are deductible under section 162(a).     A

taxpayer who is engaged in the trade or business of gambling may

deduct gambling losses and expenses, if otherwise permitted, only

to the extent of the taxpayer’s gambling winnings.   See secs.

162(a) and 165(d); Valenti v. Commissioner, T.C. Memo. 1994-483.

A taxpayer who is not engaged in the trade or business of

gambling also may deduct such losses and expenses to the extent

of their winnings, but must do so under section 165(a).    A

deduction under section 165(a) reduces a taxpayer’s taxable

income only if the taxpayer elects to forgo the standard

deduction.   See sec. 63.

     Resolving the question whether a taxpayer is engaged in a

trade or business “requires an examination of the facts in each

case.”   Commissioner v. Groetzinger, 480 U.S. 23, 36 (1987)

(quoting Higgins v. Commissioner, 312 U.S. 212, 217 (1941)).       The

Supreme Court in Commissioner v. Groetzinger, supra, addressing
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the question whether a full-time gambler who gambled solely for

his own account was engaged in a trade or business, stated:

     to be engaged in a trade or business, the taxpayer must be
     involved in the activity with continuity and regularity and
     * * * the taxpayer’s primary purpose for engaging in the
     activity must be for income or profit. A sporadic activity,
     a hobby, or an amusement diversion does not qualify. * * *
     we conclude 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 within the meaning of the statutes with
     which we are here concerned. Respondent Groetzinger
     satisfied that test in 1978. Constant and large-scale
     effort on his part was made. Skill was required and was
     applied. He did what he did for a livelihood, though with a
     less-than-successful result. This was not a hobby or a
     passing fancy or an occasional bet for amusement. Id. at
     35-36.

After his employer terminated his position in February 1978, the

taxpayer in Groetzinger devoted the remainder of the year to

parimutuel wagering, primarily on greyhound races.   During this

time, he spent 6 days a week for 48 weeks at the track and spent

a substantial amount of time studying racing forms, programs, and

other materials.   In all, he devoted 60 to 80 hours each week to

gambling-related activities.   After February, he had no

employment or profession other than gambling.   He received $6,498

in non-gambling income from interest, dividends, capital gains,

and salary earned prior to termination.1



     1
      That the taxpayer in Groetzinger gambled “with a view to
earning a living from such activity” was not disputed by the
Commissioner. See Groetzinger v. Commissioner, supra at 24 n.2
(quoting Groetzinger v. Commissioner, 82 T.C. 793, 795 (1984)).
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     In this case, petitioner’s visits to the casino were not

continuous or regular.   Petitioner points to the total number of

hours he spent at the casino over the course of the year, and

argues that he averaged 20 hours per week gambling.   However, his

visits to the casino throughout the year were very sporadic.    The

number of monthly visits rose as high as 17 in October, but in

December he made no visits and in several other months he made

only 2 or 3.   Petitioner also argues that the amount of time he

spent in his antique sales business is similar to the amount of

time he spent in the gambling activity.2   The aggregate amount of

time spent in the activity is not as determinative as the fact

that petitioner had little continuity or regularity to his

visits.   Finally, petitioner argues that the sporadic nature of

his gambling was dictated by his knowledge of “how the machines

were cycling or if the machines were being adjusted to reduce

players odds.”   We do not accept this argument, both because it

is not supported by any evidence and because we do not find it

plausible that petitioner had knowledge of when the video poker

machines were producing higher payoffs which was sufficiently

accurate or specific to dictate when he should visit the casino.

     The primary purpose of petitioner’s gambling activity was

for amusement, not for profit:   His activity, although


     2
      Respondent has not challenged petitioner’s deduction of the
loss from the antiques business, so we need not address the
accuracy of petitioner’s treatment of the activity as a business.
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substantial, was more consistent with a hobby than a trade or

business.   He argues that he spent a significant amount of time

studying “cycles” of video poker machines, reading publications

relating to video poker, and practicing on his own video poker

machine in order to “achieve greater success while gambling.”

These efforts would be consistent with a desire to win money.

However, the desire to win money is consistent with gambling

purely for its entertainment or recreational aspects, and we find

that petitioner gambled primarily for this reason rather than

primarily for profit.

     Finally, we note that petitioner is semiretired and in 1996

received a substantial amount of income:    Excluding his business

loss of $3,415, he received over $40,000 in interest, individual

retirement account distributions, and Social Security benefits.

This income and petitioner’s semiretired status indicate that he

was not relying upon gambling for his livelihood.

     In his trial briefs, petitioner discusses the material

participation requirements of section 469 and the regulations

thereunder.   First, petitioner points to the references in these

provisions to 500 hours of participation in an activity, arguing

that he was in the trade or business of gambling because he

devoted nearly twice that amount of time.   See, e.g., sec. 1.469-

5T(a)(1), Temporary Income Tax Regs., 53 Fed. Reg. 5725 (Feb. 25,

1988).   These provisions govern whether a trade or business is
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passive and do not address the more fundamental question of

whether an activity constitutes a trade or business.    Second,

petitioner argues that instructions for the Schedule C provide

that there are no “limitations on losses” for nonpassive

activities (i.e., activities which meet the material

participation requirements).    It is true that section 469 imposes

no additional limitations on such losses, but the losses are

still subject to the more general limitations discussed above.

     We hold that petitioner was not engaged in the trade or

business of gambling in 1996.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                      Decision will be entered

                                 for respondent.
