                       T.C. Memo. 2004-144



                     UNITED STATES TAX COURT



                 LILLIE M. PETTY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1984-03.                Filed June 17, 2004.


     Lillie M. Petty, pro se.

     Thomas D. Yang, for respondent.


                       MEMORANDUM OPINION


     PAJAK, Special Trial Judge:    Respondent determined a

deficiency of $1,755 in petitioner’s 2000 Federal income tax.

Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue.

     This Court must decide:    (1) Whether petitioner had

unreported gambling income, and (2) whether the inclusion of such

income reduced petitioner’s earned income credit.
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     Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in Chicago, Illinois, at the time

she filed her petition.

     Section 7491(a) does not apply because this case involves

legal issues.

     On Form 1040, U.S. Individual Tax Return, for taxable year

2000, petitioner reported $11,835 in wage income.     Petitioner did

not report any other income.    Petitioner also claimed head of

household filing status, two dependency exemptions, and the

standard deduction.   Petitioner claimed the earned income credit

(EIC) in the amount of $3,888.

     Respondent received five Forms W-2G, Certain Gambling

Winnings, for taxable year 2000, four from Hollywood Casino

Aurora in the amounts of $2,500, $2,000, $1,800, and $1,440,

respectively, and one from Showboat Marina Casino Partnership in

the amount of $1,440, for a total of $9,180.     From these Forms

W-2G, respondent determined that petitioner had unreported

gambling income of $9,180 for taxable year 2000.     Accordingly,

respondent increased petitioner’s adjusted gross income to

$21,015 and decreased petitioner’s EIC by $1,755.

     Section 61(a) provides that gross income includes all income

from whatever source derived, unless excludable by a specific

provision of the Code.    No specific code section excludes

gambling winnings from gross income.     Section 165(d) allows
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gambling losses but only to the extent of gambling winnings.

     Petitioner stipulated that she received gambling winnings in

the amount of $9,180 during taxable year 2000.    In the notice of

deficiency, respondent allowed petitioner a deduction for

itemized deductions, including gambling losses equal to her

gambling winnings.

     We find that the unreported $9,180 of gambling winnings is

includable in petitioner’s adjusted gross income for the taxable

year 2000.   As a result, petitioner’s adjusted gross income was

properly increased from $11,835 to $21,015.    There is no argument

or evidence from petitioner that she was in the trade or business

of gambling.   Thus her gambling losses are deductible only as

itemized deductions, not from gross income, in arriving at

adjusted gross income.    Her gambling winnings therefore result in

a dollar-for-dollar increase to her adjusted gross income.

Torpie v. Commissioner, T.C. Memo. 2000-168.

     Section 32(a)(1) allows an earned income tax credit to

eligible individuals.    Section 32(a)(2) provides that the

allowable credit shall be phased out if “the modified adjusted

gross income (or, if greater, the earned income) of the taxpayer

for the taxable year” exceeds a prescribed amount.    Section

32(c)(5) defines modified adjusted gross income as “adjusted

gross income determined without regard to” adjustments not

relevant here.   There is no provision in section 32 that excludes
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gambling income from modified adjusted gross income or allows the

deduction of gambling losses in arriving at modified adjusted

gross income.

     Unfortunately for petitioner, the EIC is based upon modified

adjusted gross income as defined for section 32.   We have

verified that respondent’s computation of the earned income

credit is correct based on the inclusion of petitioner’s gambling

winnings as part of her modified adjusted gross income.   We

conclude that the increase in petitioner’s modified adjusted

gross income decreased her EIC and resulted in the deficiency in

issue.   We have no choice but to sustain respondent’s

determination.



                                         Decision will be entered

                                    for respondent.
