ATTORNEY FOR PETITIONER:                         ATTORNEYS FOR RESPONDENT:
JAMES K. GILDAY                                  GREGORY F. ZOELLER
GILDAY & ASSOCIATES, P.C.                        INDIANA ATTORNEY GENERAL
Indianapolis, IN                                 JOHN P. LOWREY
                                                 DEPUTY ATTORNEY GENERAL
                                                 Indianapolis, IN


                                                                        FILED
                                IN THE                             Apr 14 2016, 2:09 pm

                          INDIANA TAX COURT                             CLERK
                                                                    Indiana Supreme Court
                                                                       Court of Appeals
                                                                         and Tax Court


NICK POPOVICH,                               )
                                             )
       Petitioner,                           )
                                             )
                     v.                      )     Cause No. 49T10-1010-TA-00053
                                             )
INDIANA DEPARTMENT OF STATE                  )
REVENUE,                                     )
                                             )
       Respondent.                           )


           ORDER ON RESPONDENT’S MOTION FOR SUMMARY JUDGMENT

                                FOR PUBLICATION
                                  April 14, 2016

WENTWORTH, J.

       Nick Popovich claims that he is a professional gambler and, as such, reported

income and deductions associated with his trade. The Indiana Department of State

Revenue disagreed that gambling was his occupation and issued adjusted gross

income tax (AGIT) assessments for the 2003, 2004, and 2005 tax years (“years at

issue”).    The matter, currently before the Court on the Department’s Motion for

Summary Judgment, presents the following issues for the Court to decide: whether the

Department’s 2003 AGIT assessment was timely; and whether Popovich was a
professional gambler eligible for certain deductions from his adjusted gross income.

Upon review, the Court finds in favor of Popovich in part and denies the Department’s

Motion.1

                          FACTS AND PROCEDURAL HISTORY

       The following facts are not in dispute. On December 29, 2007, the Department

issued an Investigation Summary to Popovich rejecting his contention that he was

engaged in the trade or business of gambling in 2003 and 2004. (See Resp’t Confd’l

Des’g Evid., Vol. VI at 1213-31, May 11, 2012.) Consequently, on January 28, 2008,

the Department issued Proposed Assessments to Popovich in the amount of

$403,762.72 for additional AGIT due, as well as interest and penalties. (See Resp’t

Confd’l Des’g Evid., Vol. VI at 1232-41.)           Popovich protested, but the Department

upheld the Proposed Assessments in their entirety. (See Resp’t Confd’l Des’g Evid.,

Vol. I at 1252-63; Resp’t Des’g Evid., Vol. I at 1203-12.)

        On October 4, 2010, Popovich initiated an original tax appeal challenging the

Department’s imposition of additional AGIT and interest for the 2003 and 2004 tax years

and its imposition of negligence penalties for all of the years at issue. (See Pet’r Br.

Supp. Resp. Opp’n Resp’t Mot. Summ. J. (“Pet’r Br.”) at 2-3 (citing generally Pet’r Pet.),

Aug. 15, 2014.) On February 9, 2012, the Department moved for summary judgment

and designated, among other things, the Proposed Assessments as evidence.                     On

February 27, 2015, the Court held a hearing on the Department’s Motion. Additional

facts will be supplied as necessary.



1
  The parties have designated evidence that contains confidential information. Accordingly, the
Court will provide only that information necessary for the reader to understand its disposition of
the issues presented. See generally Ind. Administrative Rule 9.
                                                2
                               STANDARD OF REVIEW

         Summary judgment is proper when the designated evidence demonstrates that

no genuine issues of material fact exist and the moving party is entitled to judgment as

a matter of law. Ind. Trial Rule 56(C). A genuine issue of material fact exists when a

fact concerning an issue that would dispose of the case is in dispute or when the

undisputed facts support conflicting inferences as to the resolution of an issue. Miller

Pipeline Corp. v. Indiana Dep’t of State Revenue, 995 N.E.2d 733, 734 n.1 (Ind. Tax Ct.

2013).

                                       ANALYSIS

         When, as here, the Department has moved for summary judgment and properly

designated its Proposed Assessments as evidence, it has made a prima facie case that

there is no genuine issue of material fact regarding the validity of the assessed tax. See

Indiana Dep’t of State Revenue v. Rent-A-Center E., Inc. (RAC II), 963 N.E.2d 463,

466-67 (Ind. 2012). Consequently, the burden to produce evidence that demonstrates

that there is, in actuality, a genuine issue of material fact with respect to the assessed

tax has shifted to Popovich. See id. at 467.

         Popovich designated evidence to demonstrate whether genuine issues of

material fact exist regarding the timeliness of the Department’s 2003 Proposed

Assessment and whether Popovich was engaged in the trade or business of gambling

in 2003 and 2004. (See Pet’r Br. at 39-68.) Nevertheless, the Court must first address

the Department’s arguments that a portion of Popovich’s designated evidence, i.e.,

Popovich’s Affidavit and Preston Boskett’s Expert Witness Report, is inadmissible. (See

generally Resp’t Reply Supp. Resp’t Mot. Summ. J. (“Resp’t Reply Br.”) at 4-7 (referring



                                            3
to Pet’r Des’g Evid., Exs. A-B, Aug. 15, 2014), Jan. 20, 2015.) See also Miller Pipeline,

995 N.E.2d at 736 (providing that “when ruling on a motion for summary judgment, this

Court will only consider properly designated evidence that would be admissible at trial”

(citations omitted)).

                         I. Popovich’s designated evidence

                                   Popovich’s Affidavit

       The Department asserts that the Court should disregard Popovich’s Affidavit

because it “contradicts other statements made by Popovich during discovery[,]” is

internally inconsistent, contains conclusory statements, puts Popovich’s credibility at

issue, and improperly attempts to create genuine issues of material fact where there are

none. (See Resp’t Reply Br. at 4-5; Hr’g Tr. at 98-99.) The Department, however, has

not supported these assertions by identifying a single instance where statements in

Popovich’s Affidavit contradicted his discovery statements, were internally inconsistent,

were improperly conclusory, put his credibility at issue, or improperly attempted to

create a genuine issue of material fact.     Instead, the Department merely identified

instances where Popovich’s characterization of the evidence differed from the

Department’s. (Compare, e.g., Resp’t Reply Br. at 4 and Resp’t Br. Supp. Mot. Summ.

J. (“Resp’t Br.”) at 20-22, Feb. 9, 2012 with Pet’r Des’g Evid., Ex. A ¶¶ 62-66 (where the

Department alleged that Popovich was an employee of Sage-Popovich, Inc. during the

years at issue and Popovich averred that he was not).) Accordingly, the Court will not

find Popovich’s Affidavit inadmissible as designated evidence.

                                   Boskett’s Report

       The Department also maintains that the Court should disregard Boskett’s Report



                                            4
because it merely shows that Boskett is an expert on opening and managing casinos,

not on gambling or professional gambling.        (See Resp’t Reply Br. at 5-7.)      Expert

opinion testimony “must be preceded by a foundation of evidence establishing the

witness’s credentials as an expert and the reliability of any scientific methods utilized by

the witness to reach the opinion.” Noblesville Casting Div. of TRW, Inc. v. Prince, 438

N.E.2d 722, 727 (Ind. 1982). Thus, Popovich needed to do more than contend that

Boskett’s work in casinos for nearly 30 years made him an expert on gambling and

professional gamblers to establish Boskett’s familiarity with blackjack and professional

blackjack players. (See Pet’r Sur-Reply Opp’n Resp’t Mot. Summ. J. at 8-10 (referring

to Pet’r Des’g Evid., Ex. B at 32-35), Feb. 17, 2015; Hr’g Tr. at 88-91.)         Because

Popovich did not lay a proper foundation to show Boskett’s expertise regarding

professional gambling, the Court will not consider Boskett’s Report in resolving the

Department’s Motion.

                          II. The 2003 Proposed Assessment

       In moving for summary judgment and designating its 2003 Proposed Assessment

as evidence, the Department has made a prima facie case that there is no genuine

issue of material fact. Nonetheless, Popovich contends that there is a genuine issue of

material fact whether the Department’s 2003 Proposed Assessment was timely issued.

(See Pet’r Br. at 12-13, 39-42 (referring the Court to the arguments and evidence he

presented in litigating his earlier motion for Trial Rule 37 sanctions).) In response, the

Department explains that Popovich’s certified mail transmittal envelope demonstrates

his 2003 income tax return was mailed to the Department on February 1, 2005, and

thus, when it issued the Proposed Assessment on January 28, 2008, it was well within



                                             5
the three year limit required under Indiana Code § 6-8.1-5-2(a). (See Resp’t Br. at 15

(citing Resp’t Des’g Evid., Vol. I at 1137).) See also IND. CODE § 6-8.1-5-2(a) (2003)

(providing that the Department “may not issue a proposed assessment . . . more than

three (3) years after . . . the date [a] return is filed”). The Department further supports

its claim by stating that Popovich has failed to rebut the accuracy of the Proposed

Assessment because he did not indicate when his 2003 income tax return was actually

mailed.   (See Resp’t Reply Br. at 9-10 (citing Pet’r Mot. Trial Rule 37 Sanctions,

Including J. & Fees (“Pet’r Mot. Sanctions”), Ex. A ¶¶ 8-9, Feb. 22, 2012); Hr’g Tr. at 39-

42, 99.) In the alternative, the Department asserts that no statute of limitations governs

here because Popovich’s 2003 certified mail transmittal envelope proves his return was

mailed well after its 2004 due date, making Popovich’s “late” return “the legal equivalent

of no return at all.” (See Resp’t Br. at 14-15.) See also I.C. § 6-8.1-5-2(e) (providing

that “if a person does not file a return, there is no time limit within which the department

must issue its proposed assessment”).

       When this Court ruled on Popovich’s motion for Trial Rule 37 sanctions, it found

that the 2003 certified mail transmittal envelope the Department attributed to Popovich

actually belonged to Popovich’s former wife.        Popovich v. Indiana Dep’t of State

Revenue (Popovich IV), 17 N.E.3d 405, 413 (Ind. Tax Ct. 2014). Thus, that envelope

does not demonstrate that Popovich mailed his 2003 income tax return to the

Department in February of 2005. Also contrary to the Department’s claim, Popovich

submitted an affidavit during the course of the Trial Rule 37 proceedings that

established the date his 2003 income tax return was mailed to the Department was

January 10, 2005. (See Resp’t Reply Br. at 9-10 (citing Pet’r Mot. Sanctions, Ex. A ¶ 9



                                             6
(providing that a temporary employee “mailed [Popovich’s 2003 Indiana income tax

return] to the [Department] on January 10, 2005” (emphasis added))).)                      See also

Popovich IV, 17 N.E.3d at 407 (finding that Popovich also signed his income tax return

on January 10, 2005).          Finally, even if Popovich’s 2003 income tax return were

untimely,2 the Department is incorrect that a late return is tantamount to never having

filed a return at all. Indeed, the plain language of Indiana Code § 6-8.1-5-2(a) and

Indiana Code § 6-8.1-6-3(a) both contemplate the filing of late returns. Specifically,

Indiana Code § 6-8.1-5-2(a) acknowledges that a return filed after the due date has the

same effect as a timely filed return regarding when an assessment may be made. See

I.C. § 6-8.1-5-2(a) (providing that the Department “may not issue a proposed

assessment . . . more than three (3) years after the latest of the date the return is filed[]

or . . . the due date of the return”) (emphasis added). In addition, Indiana Code § 6-8.1-

6-3(a) does not expressly exclude untimely returns from those considered to be filed.

See IND. CODE § 6-8.1-6-3(a) (2003) (providing that a tax return mailed to the

Department is considered to be filed with the Department on the “date displayed on the

post office cancellation mark stamped on the document’s wrapper”) (amended 2008).

       When reviewing a motion for summary judgment, the Court construes all properly

asserted facts and reasonable inferences drawn therefrom in favor of the non-moving

party. See Pinnacle Entm’t, Inc. v. Indiana Dep’t of State Revenue, 32 N.E.3d 1216,

2
   Popovich has claimed that his income tax return was not late because he received an
extension of time to file the return. (See Pet’r Br. Supp. Resp. Opp’n Resp’t Mot. Summ. J.
(“Pet’r Br.”) at 12 (citing Pet’r Des’g Evid., Ex. I at 357-58 (providing that Popovich timely filed a
2003 Application for Automatic Extension of Time to File Indiana Form IT-40 or Form IT-40PNR
(Form IT-9) and made an extension payment of tax)), Aug. 15, 2014.) The Department
maintains, however, that he did not receive an extension. (See Resp’t Reply Supp. Resp’t Mot.
Summ. J. (“Resp’t Reply Br.”) at 8 n.4 (arguing that Popovich’s purported Form IT-9 voucher
does not resemble the actual form), Jan. 20, 2015.) Nonetheless, the resolution of this issue
has no bearing on whether the Department’s 2003 Proposed Assessment was timely.
                                                  7
1218 (Ind. Tax Ct. 2015). In this case, the only reasonable inference to be drawn from

the Court’s decision in Popovich IV, the designated evidence, and the language of

Indiana Code § 6-8.1-5-2(a) and § 6-8.1-6-3(a) is that Popovich filed his return with the

Department on January 10, 2005, the date it was signed and deposited in the mail. In

light of this and because the parties do not dispute that the Department issued its 2003

Proposed Assessment on January 28, 2008, the Court finds that the 2003 Proposed

Assessment was not timely issued and thus is void. Accordingly, with no genuine issue

of material fact regarding the untimeliness of the Department’s 2003 Proposed

Assessment, Popovich has shown that he is entitled to summary judgment on this issue

as a matter of law.     See T.R. 56(B) (“When any party has moved for summary

judgment, the court may grant summary judgment for any other party upon the issues

raised by the motion although no motion for summary judgment is filed by such party”).

                  III. Engaged in the trade or business of gambling

       Finally, the Department claims that Popovich was not eligible as a matter of law

to deduct from his income the expenses he incurred while playing blackjack in 2004.3

(See Resp’t Br. at 15-38.)      The expense deductions at issue are above-the-line-

deductions made pursuant to the provisions of the Internal Revenue Code and the

related U.S. Treasury Regulations in determining federal adjusted gross income. See,

e.g., I.R.C. §§ 62, 162, 183 (2004). Indiana incorporates by specific reference these

federal provisions and regulations in defining adjusted gross income under IRC § 62 as

the starting place for calculating an individual’s Indiana adjusted gross income. IND.

CODE § 6-3-1-3.5(a) (2004) (amended 2005).           Determining whether a taxpayer is

3
  Although the Department has also claimed that Popovich could not deduct his 2003 gambling
expenses, the Court need not address this claim having determined that the Department’s 2003
Proposed Assessment is invalid.
                                             8
engaged in a trade or business, here professional gambling, or is pursuing instead a

hobby, has been frequently litigated in federal courts that typically refer to the

regulations promulgated under section 183 of the Internal Revenue Code (the hobby

loss rules). See Nickeson v. C.I.R., 962 F.2d 973, 976 (10th Cir. 1992). See also, e.g.,

Moore v. C.I.R., 102 T.C.M. (CCH) 74, 2011 WL 2929186, at *2-3 (T.C. 2011); Betts v.

C.I.R., 100 T.C.M. (CCH) 67, 2010 WL 2990300, at *5-15 (T.C. 2010); McKeever v.

C.I.R., 80 T.C.M. (CCH) 358, 2000 WL 1297710, at *8-19 (T.C. 2000). The hobby loss

rules were “derived principally from prior case law” and focused on whether the

taxpayer was engaged in the activity with the objective of making a profit. See, e.g.,

Golanty v. C.I.R., 72 T.C. 411, 425-27 (T.C. 1979), aff’d by 647 F.2d 170 (9th Cir.

1981); accord C.I.R. v. Groetzinger, 480 U.S. 23, 35 (1987) (resolving the issue based

on whether the taxpayer gambled with continuity and regularity and with the primary

purpose of income or profit).

      Treasury Regulation § 1.183-2 provides that the determination of whether a

taxpayer is engaged in an activity with the objective of making a profit is a question of

fact to be resolved based on all the facts and circumstances in a specific case. See

Treas. Reg. § 1.183-2(a) (2003); see also Golanty, 72 T.C. at 426. The Regulation

further instructs that a taxpayer’s expectation of profit need not be reasonable, but it

must be bona fide.       See Treas. Reg. § 1.183-2(a); Golanty, 72 T.C. at 426.

Furthermore, the Regulation indicates that although a taxpayer’s subjective intent is

germane, greater weight should be given to the objective facts. See Treas. Reg. §

1.183-2(a).

      To that end, the Regulation sets forth a non-exhaustive list of factors to be



                                           9
weighed when determining whether a taxpayer was engaged in gambling with the

objective of making a profit. See Treas. Reg. § 1.183-2(b). These factors include: (1)

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

taxpayer or his advisers; (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. Id. No single factor or specific

group of factors, however, is dispositive; consequently, all nine of the enumerated

factors will not apply in every case. See id.; Golanty, 72 T.C. at 426; Hastings v. C.I.R.,

97 T.C.M. (CCH) 1355, 2009 WL 814227, at *4-5 (T.C. 2009).

       The very nature of these inquires make it highly unlikely that this determination

could ever be resolved by summary judgment.              Indeed, this Court has recently

explained that it will not grant summary judgment to any party when the evidentiary

presentations require it to resolve factual disputes and conflicting inferences, assess a

witness’s credibility, or determine where the preponderance of the evidence lies before

it has been fully presented. See Elmer v. Indiana Dep’t of State Revenue, 42 N.E.3d

185, 197 (Ind. Tax Ct. 2015). While the parties have agreed that factors 4 and 5 do not

apply, (compare Pet’r Br. at 44-45 with Resp’t Br. at 23-24 and Resp’t Reply Br. at 13),

all of the remaining factors are susceptible to conflicting inferences because all the

reasonable inferences that can be drawn from the material facts are in dispute. For

example, the parties dispute the reasonable inferences to be drawn from 1) Popovich’s



                                             10
self-prepared records regarding his businesslike manner, 2) his readings, talking to

casino employees, and lack of a card counting strategy regarding his expertise, 3) the

amount of time he spent gambling, 4) his significant losses overall as related to his

occasional winnings, 5) his losses that may indicate a motive of sheltering other income,

and 6) his 20 year history of playing blackjack for recreation. (Compare Resp’t Br. at

20-22, 24, 26-28, 31-35, 37-38 and Resp’t Reply Br. at 17-20 with Pet’r Br. at 7, 9-10,

22-35, 51-62.) Accordingly, the parties have asked the Court to make exactly the types

of judgment calls with respect to each of the relevant factors that make summary

judgment inappropriate.4

                                         CONCLUSION

       For the above-stated reasons, the Court finds that there are no genuine issues of

material fact regarding the untimeliness of the Department’s 2003 Proposed

Assessment, and therefore, the Court GRANTS summary judgment to Popovich with

respect to this issue. Nonetheless, because there are genuine issues of material fact

regarding whether Popovich was a professional gambler eligible for certain deductions

from his adjusted gross income for the 2004 tax year, the Court DENIES summary

judgment to either party with respect to this issue. Consequently, the Court will order

the parties to file a joint status report under separate cover.

       SO ORDERED this 14th day of April 2016.


                                                     Martha Blood Wentworth, Judge
                                                     Indiana Tax Court

4
   The parties have also presented several other arguments regarding the importance of, and
inferences to be drawn from, certain facts. (Compare, e.g., Resp’t Br. Supp. Mot. Summ. J.
(“Resp’t Br.”) at 3-6, Feb. 9, 2012 and Resp’t Reply Br. at 5, 7-8 with Pet’r Br. at 12-21 and Pet’r
Sur-Reply Opp’n Resp’t Mot. Summ. J. at 7-8, Feb. 17, 2015.) The Court need not resolve
these arguments to dispose of this issue.
                                                11
Distribution: James K. Gilday, John P. Lowrey




                                         12
