                    T.C. Summary Opinion 2010-67



                       UNITED STATES TAX COURT



                     HONG ZHU, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1700-09S.              Filed June 1, 2010.



     Hong Zhu, pro se.

     Jonathan Kalinski, for respondent.



     LARO, Judge:   This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1   Pursuant to section 7463(b), the decision




     1
      Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Some dollar amounts are rounded.
                                  -2-

to be entered is not reviewable by any other court, and this

opinion shall not be treated as precedent for any other case.

     Respondent determined an $8,251 deficiency in petitioner’s

2006 Federal income tax due to disallowed gambling losses.

Respondent also determined a $1,650 accuracy-related penalty

under section 6662(a).    Respondent included those determinations

in a notice of deficiency issued to petitioner on October 20,

2008.    Respondent later asserted an increased deficiency of

$103,221 and an additional accuracy-related penalty of

$20,644.20, due to $332,995 in unreported proceeds received from

the sale of stock.    The parties now agree that petitioner had a

$327,539 basis in that stock and that petitioner did not report

the resulting short-term capital gain of $5,456 ($332,995 -

$327,539).

     The issues for decision are:       (1) Whether petitioner may

deduct her claimed gambling losses to the extent of her gambling

winnings, (2) whether petitioner is liable for an accuracy-

related penalty on overstated gambling losses, and (3) whether

petitioner is liable for an accuracy-related penalty on her

$5,456 unreported capital gain.

                             Background

        The parties’ stipulation of facts and the accompanying

exhibits are incorporated herein by this reference.       We find the
                                  -3-

stipulated facts accordingly.    When the petition was filed,

petitioner resided in California.

     During 2006, petitioner earned $9,220 in wages working part

time at a restaurant.   She also reported for that year $56,434 in

gambling winnings, for which she received a total of 14 Forms

W-2G, Certain Gambling Winnings, from Mirage Resort & Casino

(Mirage) and Pechanga Resort & Casino (Pechanga).    The payor and

the winnings shown on each of these Forms W-2G are as follows:

              Payor             Winnings         Total

            Pechanga            $2,500
            Pechanga             2,500
            Pechanga             1,700
            Pechanga             4,000
            Pechanga             2,000
            Pechanga            10,034
            Pechanga            10,000
            Pechanga            10,000
            Pechanga             4,000
            Pechanga             3,000
            Pechanga             2,500          $52,234

            Mirage               1,500
            Mirage               1,500
            Mirage               1,200            4,200

                                                 56,434

Petitioner reported $56,434 in gambling losses on her 2006

Schedule A, Itemized Deductions.

     Petitioner gambled for fun.    She went to Mirage once or

twice, and she went to Pechanga an undetermined number of times.
                                 -4-

She also gambled at a third location, the Bicycle Casino.2     She

typically went to a casino with approximately $500, and she bet

that money and continued to gamble with her winnings until she

lost all of her gambling money or left the casino for the day.

Petitioner estimates that her net loss from gambling was

approximately $2,000 or $3,000 in 2006.

     Petitioner played at the casinos blackjack, mini baccarat,

pai gow poker, roulette, or slot machines.    She gambled

predominantly at the slot machines and regularly bet $100 or

more.    Petitioner used a card issued by Pechanga each time she

gambled there.    The card tracked her wins and losses, and at the

end of the day, she cashed out the tokens and tickets she

received as winnings during the day.   The casinos issued a Form

W-2G to petitioner when her winnings exceeded $1,200, and she did

not receive any such form when her winnings were under $1,200.

Three of the Forms W-2G that petitioner received from Pechanga

for 2006 reported respectively that she won $10,000, $10,000, and

$10,034 gambling at the slot machines.    When Pechanga gave

petitioner the proceeds underlying those amounts, petitioner used

those proceeds to continue gambling at the slot machines until

she eventually lost all of those proceeds.



     2
      At trial, petitioner could not recall the number of visits
she made to the various casinos. She sometimes received several
Forms W-2G for a single visit, so the number of forms does not
correspond to the number of visits.
                                  -5-

     On or about January 28, 2007, Pechanga mailed to petitioner

a statement of her estimated wins and losses for 2006.    The

statement informed petitioner:    “Your personal records are the

best source data for justification of gaming win (loss) for IRS

reporting purposes.   This data is un-audited and should be used

only for information purposes.”    The statement further advised

petitioner:   “Your estimated record of Cash In, Cash Out and

Actual Win (Loss) for calendar year 2006 is noted” as such:

Total Cash In         Total Cash Out      Win (Loss)     Game Type

   $2,100                  $300            ($1,800)         BJ
    3,600                   -0-             (3,600)         MB
   32,102                18,600            (13,502)         PGK
   22,630                29,850               7,220         PIT
                                             1
  127,023                89,527                7,713        SLOT
         1
          We note that $7,713 does not equal $89,527 less
    $127,023. In the case of the slot machines, the “Total
    Cash In” reflects the total amount of cash that petitioner
    put into the machines, and the “Total Cash Out” reflects
    the total amount of cash that petitioner received from the
    machines. We infer (and find) that the $127,023 includes
    $45,209 of petitioner’s winnings that she reinvested into
    future plays rather than took out of the machine, so that
    her “Total Cash In” was actually $81,814 ($127,023 -
    $45,209 = $81,814). After taking this finding into
    account, the “Total Cash Out” of $89,527 less the “Total
    Cash In of $81,814” equals the reported “Win” of $7,713
    ($89,527 - $81,814 = $7,713).

         Petitioner received 21 Forms 1099-B, Proceeds From

    Broker and Barter Exchange Transactions, documenting the

    $332,995 that she received on the sale of her stock.

    Petitioner offers no explanation for not reporting these

    proceeds on her Federal income tax return.
                               -6-

                            Discussion

I.   Gambling Losses

      Gross income includes all income from whatever source

derived, including gambling winnings.       Sec. 61; McClanahan

v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961).

Taxpayers may deduct their gambling losses but only to the

extent of their gambling winnings.       Sec. 165(d).

      The burden of proof is generally on an individual

taxpayer to prove he or she is entitled to a specific

income tax deduction, such as a gambling loss; this burden

may shift to the Commissioner if certain statutory

requirements are met and the taxpayer introduces credible

evidence.   Sec. 7491(a).    We need not decide whether

section 7491(a) applies to this case because we decide the

parties’ gambling loss dispute on the basis of the record

at hand.

      Where, as here, the record provides sufficient

evidence that a taxpayer has incurred gambling losses, but

the taxpayer is unable to substantiate the precise amount

of those losses, the Court may estimate the amount of the

losses and allow a deduction to that extent.       See Drews v.

Commissioner, 25 T.C. 1354, 1355 (1956) (citing Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930)).

Although the record in this case is limited, we are
                             -7-

persuaded that petitioner incurred gambling losses

connected with her gambling winnings.   While the record

does not allow us to pinpoint the amounts of those losses,

we believe it appropriate under the facts herein to measure

petitioner’s losses by using the statement that Pechanga

issued to her.   The fact that the statement advises

petitioner that it may not be accurate does not lessen its

probative value under the facts herein, given petitioner’s

testimony that she used the card each time she gambled at

Pechanga.

     Adding the total wins and losses from the statement,

we find that petitioner’s total net gambling loss at

Pechanga was $3,969 in 2006 (($1,800) + ($3,600) +

($13,502) + $7,220 + $7,713 = ($3,969)).   Accordingly, we

hold that petitioner may deduct $52,234 of her gambling

losses at Pechanga; i.e., her losses to the extent of her

gambling income there.   Petitioner has submitted no

documentary evidence, nor offered any helpful testimony,

regarding her losses from Mirage.   We find that she did not

sufficiently substantiate any losses from Mirage.    The

three Forms W-2G issued by Mirage show a total of $4,200 in

gambling winnings.   We hold that petitioner may deduct her

remaining $3,969 in gambling losses at Pechanga on account

of the $4,200 in gains at the Mirage.   In sum, we hold that
                             -8-

petitioner may deduct (as an itemized deduction) gambling

losses totaling $56,203 ($52,234 + $3,969).

II.   Accuracy-Related Penalty on Overstated Gambling Losses

      Section 6662(a) and (b)(1) imposes an accuracy-related

penalty equal to 20 percent of the portion of an

underpayment of tax attributable to a taxpayer’s negligence

or disregard of rules or regulations.    Respondent bears the

burden of production with respect to the applicability of

that accuracy-related penalty included in the notice of

deficiency and must produce sufficient evidence that it is

appropriate to impose the penalty.    See sec. 7491(c); see

also Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Once respondent meets this burden, the burden of proof

falls upon petitioner, who may carry her burden by proving

she was not negligent and did not act carelessly,

recklessly, or in intentional disregard of rules or

regulations.   See Higbee v. Commissioner, supra at 447; see

also sec. 6662(c).   Alternatively, petitioner may establish

that the underpayment was attributable to reasonable cause

and that she acted in good faith.    See sec. 6664(c)(1).

      The term “negligence” includes any failure to make a

reasonable attempt to comply with the internal revenue

laws, and the term “disregard” includes any careless,

reckless, or intentional disregard.    See sec. 6662(c).
                                 -9-

Negligence connotes a lack of due care or failure to do

what a reasonable and prudent person would do under the

circumstances.    See Neely v. Commissioner, 85 T.C. 934, 947

(1985).    Negligence includes a failure to maintain books

and records.     We find respondent has met his burden of

production in that the record establishes that petitioner

overstated her gambling losses and had no documentation to

support deducting a gambling loss greater than that shown

on the Pechanga statement.     See sec. 1.6662-3(b)(1), Income

Tax Regs.    Petitioner’s sole argument for this lack of

documentation is that she gambled only for fun.     We

consider this argument unavailing, and we sustain

respondent’s imposition of the accuracy-related penalty as

to petitioner’s overstated gambling losses.

III.    Accuracy-Related Penalty on Unreported Capital Gain

       Respondent asserts in his amended answer that

petitioner is liable for an accuracy-related penalty under

section 6662(a) on her $5,456 unreported capital gain.

Respondent bears the burden of proof with respect to this

assertion.    See Rule 142(a).

       Respondent has produced 21 Forms 1099-B, as well as

brokerage statements, indicating that petitioner made 21

trades during 2006 that were not reported on her Federal

income tax return.     The regulations state that “Negligence
                              -10-

is strongly indicated where--(i) A taxpayer fails to

include on an income tax return an amount of income shown

on an information return, as defined in section

6724(d)(1)”.     Sec. 1.6662-3(b)(1), Income Tax Regs.

“Information return” under section 6724(d)(1) is defined to

include returns of brokers under section 6045.       Sec.

6724(d)(1)(B)(iii).     Petitioner received the 21 information

returns and offers no substantial reason for not reporting

the stock sales shown thereon.       We hold that petitioner is

liable for the accuracy-related penalty on the unreported

capital gain.

IV.   Epilogue

      We have considered all arguments made by the parties

and, to the extent not discussed above, conclude they are

without merit.

      To reflect the foregoing,


                                        Decision will be entered

                                  under Rule 155.
