                         T.C. Memo. 1998-212



                       UNITED STATES TAX COURT



          JOHN D. SMITH AND HAZEL B. SMITH, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


       Docket No. 26101-96.                  Filed June 16, 1998.


       Daniel J. Winfree, for petitioners.

       Timothy F. Salel, for respondent.


               MEMORANDUM FINDINGS OF FACT AND OPINION


       CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.    Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year 1994.      Rule

references are to the Tax Court Rules of Practice and Procedure.

       Respondent determined a deficiency in petitioners' 1994

Federal income tax in the amount of $2,783.      The issues for
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decision are:   (1) Whether petitioners are entitled to a gambling

loss deduction not claimed on their 1994 Federal income tax

return; and (2) whether petitioners may exclude from their 1994

income certain amounts received during that year pursuant to

long-term disability insurance coverage.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

Petitioners are husband and wife.    They filed a timely joint

Federal income tax return for the year 1994.     At the time the

petition was filed, petitioners resided in El Cajon, California.

     Prior to the year in issue, Hazel B. Smith was employed by

Sears, Roebuck and Co. (Sears).   She retired from Sears either

shortly before, or early in, 1994.     As a result of an accident

that occurred prior to 1994, she was confined to a wheelchair for

most, or all, of that year.

     John D. Smith was employed as a counter person by

Consolidated Electrical Distributors, Inc. (Consolidated) from

1987 until he injured his back in an employment-related accident

in 1992.   Consolidated provided long-term disability benefits to

its employees through a group plan underwritten by ITT Hartford

(Hartford).   As a result of his back injury, he applied for and

received long-term disability benefits under the group plan.

Long-term disability benefits were approved in September 1993 to

continue during the period of his disability, but not beyond
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December 1994.   The benefits took the form of monthly payments,

the amounts of which took into account his wages at the time of

the accident, worker's compensation payments and other disability

benefits received.   During 1994 he received monthly payments

(long-term disability benefits) from Hartford totaling $3,637.

The monthly payments were made by check; the check stubs indicate

that the "taxable pct" of each payment is "100".    The payments

were reported as wages on a Form W-2 issued to him by

Consolidated for the year 1994.

     Neither petitioner was employed during 1994.    Because they

had so much free time and their activities were somewhat limited

by their respective disabilities, they developed an interest in

playing bingo.   Many of their friends also played bingo and

petitioners viewed the experience as a social activity as much as

a gambling activity.

     During 1994 petitioners attended numerous bingo sessions

conducted at two Indian reservations located within 20 miles of

their residence.   Typically, they would attend one or two bingo

sessions per day, 4 to 5 days per week.   Mrs. Smith spent between

$27 and $32 per session on various types of games that were

played during the bingo sessions.   Mr. Smith spent somewhat less.

Sometimes they won, sometimes they lost, and sometimes they broke

even.   Petitioners did not consider breaking even to equate to

winning.   Petitioners did not maintain any records that reflect
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the amounts spent or won playing bingo during 1994.    They saved

some admission receipts and cards, but these documents were

discarded prior to the time that they were notified that their

1994 year was under examination.

     During a 6- or 7-week period in 1994 Mrs. Smith was

particularly lucky.   She enjoyed $12,600 in bingo winnings, which

were reported to her and respondent on Forms W-2G.

     Petitioners included $5,950 in bingo winnings in the income

reported on their 1994 Federal income tax return.    The manner in

which that amount was calculated was not explained on the return.

They did not include any portion of the disability benefits

received by Mr. Smith in their reported income.

     In the notice of deficiency respondent increased

petitioners' income by the excess of the amount of bingo winnings

reported on the Forms W-2G over the amount reported on their

return.   Respondent also increased petitioners' income by the

amount of disability benefits received by Mr. Smith.    Other

adjustments were made in the notice of deficiency but are not in

dispute in this case.

                              OPINION

Bingo Winnings and Losses

     Although raised in the context of unreported gambling

income, in essence the controversy between the parties focuses

upon the allowance of a gambling loss deduction.    In general,
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section 165(d) allows a taxpayer to deduct losses from gambling

transactions only to the extent of gains from such transactions.

     Petitioners agree that all of their bingo winnings should

have been reported, but claim entitlement to a gambling loss

deduction not listed on their 1994 return.   At trial petitioners

explained that the amount of bingo winnings reported on their

1994 return was a net amount.   Mrs. Smith estimated that she

spent more than $100 per week to play bingo during 1994.   She

calculated her total bingo losses to be $6,900 for that year.

She computed her winnings to include the $12,600 reported on

Forms W-2G, plus $250 in other winnings received in $50 or $100

increments.   The amount of bingo winnings reported on

petitioners' 1994 return was calculated by subtracting estimated

losses from estimated winnings.

     Respondent argues that petitioners are not entitled to any

deduction for gambling losses because they failed to maintain

adequate books and records from which the extent of their bingo

winnings and losses during 1994 can be established.

     Section 6001 and the corresponding regulations require

taxpayers to keep adequate records to substantiate their income

and deductions.   See also Rev. Proc. 77-29, 1977-2 C.B. 538.

When a taxpayer fails to keep records, but a court is convinced

that deductible expenditures were incurred, the court "should

make as close an approximation as it can, bearing heavily if it
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chooses upon the taxpayer whose inexactitude is of his own

making."   Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).

In cases involving gambling loss deductions, this Court has

invoked the rule of Cohan only when satisfied that the taxpayer

incurred some gambling losses, see Drews v. Commissioner, 25 T.C.

1354 (1956); Doffin v. Commissioner, T.C. Memo. 1991-114; Forman

v. Commissioner, T.C. Memo. 1988-64; Kalisch v. Commissioner,

T.C. Memo. 1986-541, affd. without published opinion 838 F.2d 461

(3d Cir. 1987), and there is some basis upon which an estimate of

such losses can be made.     Vanicek v. Commissioner, 85 T.C. 731,

743 (1985).   However, before we allow a gambling loss deduction

based upon estimates, we must be convinced that the taxpayer's

gambling losses exceeded unreported gains from gambling

transactions.   Donovan v. Commissioner, 359 F.2d 64 (1st Cir.

1966), affg. per curiam T.C. Memo. 1965-247; Schooler v.

Commissioner, 68 T.C. 867 (1977); Scoccimarro v. Commissioner,

T.C. Memo. 1979-455.

     Obviously, petitioners sustained gambling losses during

1994; equally as obvious, however, is the fact that they enjoyed

unreported bingo winnings.    In this case, because petitioners

received unreported bingo winnings, they must establish that

their annual bingo losses exceeded their annual unreported bingo

winnings in order to be entitled to a deduction for bingo losses.
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     Because petitioners did not consider small amounts won to be

consequential, and they did not consider breaking even to equate

to winning, we have no basis to calculate, or estimate,

petitioners' unreported bingo winnings.   Without some basis for

estimating petitioners' 1994 unreported bingo winnings it is

impossible to determine whether petitioners' bingo losses

exceeded those winnings.   Accordingly, they are not entitled to

any deduction for bingo losses.   It follows, and we hold, that

respondent's adjustment increasing their 1994 income by the

excess of the bingo winnings reported on Forms W-2G over reported

gambling winnings is sustained.

Long-Term Disability Benefits

     Petitioners did not report any portion of the long-term

disability benefits Mr. Smith received from Hartford in 1994.

The parties appear to agree that the group plan subscribed to by

Consolidated constitutes an accident or health plan within the

meaning of sections 104(a)(3) and 105(a), and we proceed as

though it does.   Simply stated, the statutory scheme framed

by these sections allows a taxpayer to exclude from income

amounts received through accident or health insurance plans if:

(1) The taxpayer paid for the insurance; or (2) the amounts were

attributable to contributions by the taxpayer's employer that

were includable in the taxpayer's gross income.   Sec. 104(a)(3).

On the other hand, amounts received by an employee through
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accident or health insurance for personal injuries must be

included in gross income to the extent such amounts are

attributable to contributions by the employer that were not

includable in the gross income of the employee.     Sec. 105(a).

     In this case there is nothing in the record that suggests

that the amounts contributed by Consolidated on behalf of Mr.

Smith for the long-term disability insurance that generated the

payments here under consideration were includable in his gross

income.   Although he testified that he believed that he might

have contributed a de minimis amount towards the insurance, we do

not find his testimony on the point to be sufficient to support a

finding that he did so.   Consequently, we find that section

105(a) rather than 104(a)(3) controls.     It follows that

petitioners must include in their 1994 income the amount of long-

term disability payments received by Mr. Smith during that year,

and respondent's determination in this regard is sustained.

     To reflect the foregoing and the agreed adjustments,

                                       Decision will be entered

                               under Rule 155.
