                        T.C. Summary Opinion 2019-16



                        UNITED STATES TAX COURT



             THEODORE JAMES ZALESIAK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2416-18S.                        Filed July 15, 2019.



      Theodore James Zalesiak, pro se.

      Eugene A. Kornel, for respondent.



                             SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the
                                        -2-

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      For 2015 respondent determined a $7,961 deficiency in petitioner’s Federal

income tax and a $1,592 accuracy-related penalty under section 6662. The

deficiency in tax is principally attributable to the disallowance of “total expenses”

of $19,811 claimed by petitioner on a Schedule C, Profit or Loss From Business,

in respect of his gambling activity. Of the $19,811 amount, $16,841 relates to

gambling losses and the balance relates to nonwagering expenses (i.e., car, travel,

and book expenses).

      The parties agree that petitioner is entitled to $16,841 in deductible

gambling losses for 2015. However, the parties do not agree, and the principal

issue for decision by the Court is, whether petitioner is entitled to deduct such

gambling losses (and allowable nonwagering expenses) on his Schedule C as a

professional gambler, or whether he may deduct his gambling losses (and

allowable nonwagering expenses) only on Schedule A, Itemized Deductions, as a

nonprofessional (amateur) gambler. Further, after concessions by respondent and

      1
        All subsequent section references are to the Internal Revenue Code (Code)
in effect for 2015, the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                        -3-

without regard to purely mechanical matters,2 the Court must decide whether

petitioner has substantiated deductions for nonwagering expenses, namely, car

expenses and travel expenses, that he claims were related to his gambling activity.

                                    Background

      Some of the facts have been stipulated, and they are so found. The Court

incorporates by reference the parties’ stipulations of facts and accompanying

exhibits.

      Petitioner resided in the State of Illinois when the petition was timely filed

with the Court.

      Petitioner received a bachelor of science degree in education and social

policy from Northwestern University. In or around 2008, near the end of his

college education, petitioner began playing poker online, at in-person




      2
          Respondent concedes that petitioner may deduct on either Schedule C or
Schedule A, depending on petitioner’s status as either a professional gambler or an
amateur gambler, nonwagering expenses for (a) car and travel, but only to the
extent both are allowable by law and properly substantiated, and (b) books in the
amount of $38 (the amount claimed by petitioner). Respondent also concedes that
if petitioner was an amateur gambler, petitioner is not subject to self-employment
tax under sec. 1401 (and is not entitled to a deduction for one-half of such tax
under sec. 164(f)). Further, respondent concedes that petitioner is not liable for
the accuracy-related penalty under sec. 6662. Finally, the adjustment in the notice
of deficiency regarding the amount of the deduction claimed by petitioner for
student loan interest is mechanical.
                                        -4-

tournaments, and at cash games. At some time during 2009 petitioner stopped

working at a small job when he became successful playing online poker.

      Around 2010 petitioner took a year off from playing poker “to establish a

different career” with the intention of resuming playing poker after finding an

alternative source of income. He obtained full-time employment as a construction

manager in Chicago, a position that he has held with various companies through

the date of trial. In 2011 petitioner passionately pursued poker on nights and

weekends, and his construction manager position provided him with a substantial

financial support system to “chase what * * * [he] really wanted to do full time”.

Although petitioner reported a small profit from poker in 2011, he did not profit

from playing poker in 2012, 2013, or 2014.

      Petitioner’s income tax returns for the five years immediately preceding

2015, the taxable year in issue, listed his occupation as “manager” and reported

the following:
                                            -5-

                              2010          2011       2012      2013          2014
Wages per return              $25,195       $37,759   $25,338    $34,504       $43,750
“Total income”
                          1                                                1
 per return                   $24,398       $41,660   $31,885    $36,055       $43,158
Wages/“Total income”
 (percent)                       100           90.6      79.5       95.7          100
Gross income
 from gambling
 (per Schedule C)                    (2 )   $33,020   $30,289   $110,314       $15,835
Gambling losses
 (per Schedule C)                    (2) ($29,119) ($30,289) ($110,314) ($15,835)
Net profit
 (per Schedule C)                    (2 )    $3,901    -0-        -0-           -0-
      1
        “Total income” is less than wages because of a reported capital loss.
      2
        There is no entry on line 12 (“Business income or (loss)”) of Form 1040,
U.S. Individual Income Tax Return, consistent with the fact that around 2010
petitioner took a year off from playing poker.

      In 2015, the taxable year in issue, petitioner worked as a construction

manager for approximately 30 hours per week on average, with about one-third of

his time working onsite. Petitioner occasionally engaged in poker-related

activities when he was working remotely or when he had a break.

      During the year in issue petitioner played poker in private games (i.e., at

private residences) and at casinos, principally the Horseshoe Casino in Hammond,
                                         -6-

Indiana.3 The Horseshoe Casino is about 20 miles from his home in Chicago.

Petitioner claimed deductions for car expenses on the basis of mileage to and from

the locations at which he played poker. Almost invariably petitioner went from

his residence to the casino or another location and would return to his residence

afterwards.

      Between May and September 2015 petitioner did not play poker or engage

in poker-related activities because of his busy work schedule as a construction

manager. In contrast, during December 2015, having accumulated enough leave at

work and because of a slowdown in construction projects during that time of the

year, petitioner traveled out of State. Petitioner tailored his December 2015 travel

around poker tournaments or casinos located near family or friends. For example,

he played poker on Thanksgiving in Indiana while he was visiting family; he

participated in a poker tournament in Baltimore, Maryland, while visiting an uncle

in northern Virginia; and he played poker at a casino in Florida on Christmas after

having dinner with his grandmother. Petitioner’s December 2015 travel “worked

out perfectly that * * * [he] was able to get two birds with one stone”, i.e., visit

friends and family and play poker at various casinos and other locations.




      3
          Petitioner did not play any online poker in 2015.
                                        -7-

      Petitioner alleges that he “spent about 271 days gambling, reviewing * * *

[his] results, and studying relevant poker literature.” Out of the 271 days that

petitioner contends that he engaged in poker-related activities, he spent

approximately 75 days playing poker. On the days he did not actually play poker,

he watched videos, read books, and listened to podcasts. He did not track his time

spent on poker-related activities.

      Petitioner did not gamble in other forms (e.g., gambling on horse racing).

Although petitioner wished to be a profitable poker player, he did not have a

formal business plan regarding his poker activities, he did not teach poker in an

official capacity, he did not accept any endorsements in relation to playing poker,

and he was not featured in any televised poker tournaments. Petitioner, however,

readily offered poker advice to others without charge.

      Petitioner contemporaneously compiled a spreadsheet reflecting his poker

activities, recording game locations, winnings, losses, and expenses (i.e., mileage,

tolls, and hotel). He did not, however, have a separate bank account in which he

deposited his winnings or withdrew funds to play poker.

      Petitioner timely filed a 2015 Form 1040 reporting $58,999 of wages, which

constituted 98.1% of his total reported income. Petitioner did not attach a

Schedule A to his 2015 return but rather claimed the standard deduction. He did
                                        -8-

attach to his 2015 return a Schedule C, Profit or Loss from Business, on which he

reported a net profit of $1,119 from poker, calculated as follows:

              Gross income                                 $20,930
              Less:
               Car                              $2,561
               Travel                              371
               Other:
                Books                               38
                Gambling losses                 16,841
                                                16,879

                  “Total expenses”                          (19,811)
                Net profit                                    1,119

In Part IV (“Information on Your Vehicle”) of Schedule C, petitioner indicated

that his vehicle was available for personal use and that in 2015 he drove 3,790

miles for “business”, zero miles for “commuting”, and 28,210 miles for “other”.

      At the start of 2017 petitioner lost a job that “allowed * * * [him] to have

the time available for * * * [poker].” After reflecting on his lack of meaningful

financial success playing poker in recent years4 and the number of hours he put

into the activity, he decided it was preferable to move on to other endeavors,

friends, family, and hobbies. Although he still loves watching poker and visiting




      4
        Petitioner’s reporting history for 2010 through 2015 from playing poker
appears in the text. See supra pp. 4-5. On his Schedule C for 2016 petitioner
reported a net profit from playing poker of $34.
                                         -9-

friends whenever they are doing well in tournaments, he no longer competes at the

poker table.

                                     Discussion

A. Burden of Proof

      Generally, respondent’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that those

determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). The taxpayer likewise bears the burden of proving his entitlement to

deductions allowed by the Code and of substantiating the amounts of items

underlying claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992). Section 7491(a) may place the burden of proof on the Commissioner as

to a factual issue if the taxpayer introduces credible evidence with respect to that

issue and satisfies certain other requirements. Petitioner did not allege that section

7491(a) applies, nor did he satisfy the requirements of that section. Accordingly,

section 7491(a) does not apply, and petitioner bears the burden of proof.

B. Amateur Versus Professional Gambler

      In general, section 162(a) allows a deduction for all ordinary and necessary

expenses paid or incurred during the taxable year in carrying on a trade or

business. The term “trade or business” is not defined in the Code or regulations.
                                        - 10 -

That said, caselaw makes clear that in order for an activity to be considered a trade

or business for purposes of section 162, the activity must be conducted with

“continuity and regularity” and “the taxpayer’s primary purpose for engaging in

the activity must be for income or profit.” Commissioner v. Groetzinger, 480 U.S.

23, 35 (1987). A sporadic activity or a hobby does not qualify. Id.

      Thus, to be a professional gambler, the taxpayer must have engaged in

gambling with the objective of making a profit. Sec. 183(a), (b), and (c);

Commissioner v. Groetzinger, 480 U.S. at 35; sec. 1.183-2(a), Income Tax Regs.

The amount of time spent engaged in the activity is not the most significant aspect

of the trade or business analysis; what is more important is the taxpayer’s actual or

honest objective of making a profit. See Keanini v. Commissioner, 94 T.C. 41, 46

(1990); Hulter v. Commissioner, 91 T.C. 371, 392 (1988); sec. 1.183-2(a), Income

Tax Regs.; see also Dreicer v. Commissioner, 78 T.C. 642, 643-644 (1982), aff’d,

702 F.2d 1205 (D.C. Cir. 1983). Whether a taxpayer has an actual and honest

profit objective is a question of fact to be answered on the basis of all of the

relevant facts and circumstances. Hastings v. Commissioner, T.C. Memo. 2002-

310; sec. 1.183-2(a), Income Tax Regs.

      The pertinent regulations set forth a nonexhaustive list of facts that may be

considered in deciding whether a profit objective exists. These factors include:
                                        - 11 -

(1) the manner in which the taxpayer carries on the activity, (2) the expertise of the

taxpayer or his adviser, (3) the time and effort expended by the taxpayer in

carrying on the activity, (4) the expectation that assets used in the activity may

appreciate in value, (5) the success of the taxpayer in carrying on other similar or

dissimilar activities, (6) the taxpayer’s history of income or losses with respect to

the activity, (7) the amount of occasional profits, if any, which are earned, (8) the

financial status of the taxpayer, and (9) the elements of personal pleasure or

recreation. Sec. 1.183-2(b), Income Tax Regs.; see Golanty v. Commissioner, 72

T.C. 411, 426 (1979), aff’d, 647 F.2d 170 (9th Cir. 1981); Boneparte v.

Commissioner, T.C. Memo. 2015-128, at *10.

      No single factor or group of factors is determinative. Golanty v.

Commissioner, 72 T.C. at 426; sec. 1.183-2(b), Income Tax Regs. Although the

focus of the test for whether a taxpayer engaged in the activity with intent to make

a profit is on the subjective intent of the taxpayer, greater weight is given to

objective facts than to the taxpayer’s mere statement of his or her intent. Sec.

1.183-2(a), Income Tax Regs. In addition, not every factor is relevant to every

case. See generally Vandeyacht v. Commissioner, T.C. Memo. 1994-148.

Consequently, we do not analyze in depth all of the factors enumerated in the

regulation but focus on some of the more important ones that inform our decision.
                                        - 12 -

      Petitioner testified at trial that engaging in poker-related activities

consumed his nights and weekends for the year in issue. But simply spending all

of one’s free time on an activity does not transform the activity into a trade or

business, nor does it make the participant a professional. In addition, petitioner

stopped engaging in poker-related activities for a substantial period during the

year in issue because his job as a construction manager would not permit him to

continue playing poker at that time. He also took a trip in December 2015 and

played poker in various cities, but it was possible only because he accrued enough

leave to do so; and, notably, he visited family and friends in those cities during the

trip (i.e., he “was able to get two birds with one stone”).

      Most importantly, petitioner relied on his full-time employment to

substantially support his pursuit of poker. In 2015 petitioner’s wages constituted

98.1% of his total income. Without his wages as a construction manager he could

not have paid his rent or otherwise have supported himself, nor could he have

indulged his passion for poker. Furthermore, he recognized the need for wage

income, and he looked to employment, not poker, for his livelihood. Petitioner’s

reliance on employment for his livelihood is consistent with his characterization

on his returns of his occupation as a “manager”. Indeed, petitioner testified at trial
                                         - 13 -

that self-describing himself as a “manager” “was always something that I would

tell people that I was doing if they would ask me on a professional level.”

        In the five years immediately preceding the taxable year in issue petitioner’s

wages ranged from a low of 79.5% of his total income to 100%. Indeed, other

than in 2015 and 2011, no part of petitioner’s total income was attributable to

gambling during the six-year period from 2010 through 2015. And even for those

two years, income from gambling was a minor, if not a de minimis, percentage of

petitioner’s total income, as demonstrated by the fact that for 2015 his net profit

from gambling was less than 2% of his total income and for 2011 it was less than

10%. See Commissioner v. Groetzinger, 480 U.S. at 35; Boneparte v.

Commissioner, T.C. Memo. 2017-193; sec. 1.183-2(b)(6) and (7), Income Tax

Regs.

        The Court does not question that petitioner wished to win at poker.

Nevertheless, for the reasons previously discussed and giving greater weight to

objective facts than to petitioner’s mere statement of intent, the Court holds that

petitioner did not have the requisite profit objective to qualify his gambling

activity as a trade or business for 2015. Lacking the requisite profit objective,
                                       - 14 -

petitioner may deduct his poker-related losses and any allowable expenses only on

Schedule A.5

C. Gambling Losses, Car Expenses, and Travel Expenses

      Having decided that petitioner was not a professional gambler in 2015, the

Court turns now to the issue of substantiation.

      Deductions are a matter of legislative grace, and taxpayers must prove

entitlement to any deductions claimed. Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. at 84. Taxpayers are required to identify each deduction,

show that they have satisfied all requirements, and keep books or records to

substantiate items underlying the deductions. Sec. 6001; sec. 1.6001-1(a), Income

Tax Regs.

      In the case of an activity not engaged in for profit, section 183(a) allows no

deduction other than as allowed in section 183(b). As applicable to the present

case, section 183(b)(2) allows “a deduction equal to the amount of the deductions

which would be allowable * * * if such activity were engaged in for profit”. See,

e.g., Boneparte v. Commissioner, at *9-*10.


      5
         Because petitioner is not considered a professional gambler, he is not
(consistent with respondent’s concession, see supra note 2) subject to self-
employment tax, see secs. 1401 and 1402(a), or entitled to the deduction for one-
half of such tax, see sec. 164(f).
                                       - 15 -

      The parties agree that petitioner is entitled to $16,841 in deductible

gambling losses for 2015, and respondent has conceded that petitioner is entitled

to a $38 deduction for the purchase of books. Thus, the Court must decide

whether petitioner would be entitled to deductions for car expenses and for travel

expenses if his poker activities had been engaged in for profit. Here a number of

fundamental principles inform our decision.

      As previously stated, under section 162(a) a deduction is allowed for

ordinary and necessary expenses paid or incurred during the taxable year in

carrying on any trade or business. However, personal, living, or family expenses

are generally nondeductible. Sec. 262(a). In particular, expenses of daily

commuting (unlike travel expenses, see sec. 162(a)(2)) are generally not

deductible because such expenses constitute personal expenses. See sec. 1.262-

1(b)(5), Income Tax Regs.; see also sec. 1.162-2(e), Income Tax Regs. Although

there are exceptions to this general rule, see, e.g., Rehman v. Commissioner, T.C.

Memo. 2013-71, at *13-*14, a taxpayer typically bears the burden of proving that

an exception exists permitting the deduction of commuting expenses. Petitioner

did not allege that any such exception applies, and the record does not support a

finding sufficient to invoke any such exception.
                                        - 16 -

      Further, section 274(d) prescribes more stringent substantiation

requirements that must be satisfied before a taxpayer may deduct certain

categories of expenses, such as travel expenses (including meals and lodging

while away from the taxpayer’s home overnight) and car expenses. Thus, no

deduction is allowed for such categories of expenses unless the taxpayer

substantiates, by adequate records or by sufficient evidence corroborating the

taxpayer’s own statement, each of the following elements: (1) the amount of each

separate expenditure; (2) the time and destination city or town, the date of return,

and the time spent on business; and (3) the business reason or expected business

benefit from the travel. See sec. 274(d); Niv v. Commissioner, T.C. Memo. 2013-

82, at *9-*10.

      Petitioner incurred car expenses when driving between his residence and

poker venues such as the Horseshoe Casino in Hammond. Such expenses are

personal expenses in the nature of commuting and do not qualify as deductible

expenses. See sec. 1.262-1(b)(5), Income Tax Regs.; see also sec. 1.162-2(e),

Income Tax Regs. On a few occasions petitioner may have driven to a poker

venue directly from his employer’s worksite; however, the Court may not estimate

either the number of such instances or the mileage incurred given the strictures of
                                        - 17 -

section 274(d). See Schladweiler v. Commissioner, T.C. Memo. 2000-351, aff’d,

28 F. App’x 602 (8th Cir. 2002).

      Finally, petitioner incurred expenses traveling in December 2015. That

travel appears to have been motivated more by personal considerations related to

visiting family and friends over the holidays than by the desire to make money by

playing poker, as petitioner could have played (and would have had more time to

play) poker close to home had he not embarked on a multistate journey. See

Henry v. Commissioner, 36 T.C. 879, 884 (1961). Accordingly, the Court holds

that petitioner is not entitled to a deduction for his December 2015 travel

expenses.

                                    Conclusion

      In order to reflect the Court’s disposition of the disputed issues, as well as

respondent’s concessions, see supra note 2,


                                                 Decision will be entered

                                       under Rule 155.
