                        T.C. Memo. 2000-282



                      UNITED STATES TAX COURT



        WILLIAM T. AND DEBORAH S. PRAYTOR, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3568-99.                      Filed August 31, 2000.



     J. Donald Hughes, for petitioners.

     Shuford A. Tucker, Jr., for respondent.



                        MEMORANDUM OPINION

     CARLUZZO, Special Trial Judge:   Respondent determined

deficiencies of $6,621, $9,500, and $9,012 in petitioners’

Federal income taxes for years 1994, 1995, and 1996,

respectively.   For each year in issue, the issue for decision

is whether deductions for losing wagers and related expenses
                                 - 2 -

attributable to gambling transactions are limited by the gains

from such transactions.

Background

     This case was submitted fully stipulated, and the stipulated

facts are so found.     Petitioners are husband and wife.   Their

joint Federal income tax return for each year in issue was timely

filed.    At the time that the petition was filed, petitioners

resided in Fairhope, Alabama.     References to petitioner are to

William T. Praytor.

     As evidenced by numerous Forms W-2G, Certain Gambling

Winnings, issued to petitioner by various casinos, petitioner won

the following amounts from slot machine play (the Form W-2G

winnings):

                 Year                       Amount

                 1994                      $49,800

                 1995                       24,950

                 1996                      244,000

     The Form W-2G winnings are the exclusive source of gross

income reported on a Schedule C, Profit or Loss From Business,

included with petitioners’ Federal income tax return for each

year.    Other items reported on the Schedules C are listed below

(amounts rounded):
                                - 3 -

     Item                        1994      1995      1996

   Interest deduction           $4,719    $8,868    $9,303

   Losing wagers                70,125    54,797   267,841

   Net loss                     25,044    38,715    33,143

The net losses listed above offset other income reported on

petitioners’ returns.

     On each Schedule C petitioner described his profession as a

“Professional Gambler”.    The parties stipulated that petitioner

“was in the trade or business of legal gambling” during each year

in issue.    They further stipulated that during 1996, petitioner

incurred additional expenses totaling $41,992.23 in connection

with his gambling trade or business.

     In the notice of deficiency respondent disallowed the net

losses referred to above.    According to the explanation in the

notice of deficiency, each net loss was disallowed in full

because “gambling losses are only allowed to the extent of gains

derived from such transactions.”

Discussion

     In general, section 165(a)1 allows a taxpayer to deduct “any

loss sustained during the taxable year and not compensated for by

insurance or otherwise.”    Losses from wagering transactions,

however, are “allowed only to the extent of the gains from such



     1
        Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue.
                                - 4 -

transactions.”   Sec. 165(d).

     According to petitioners, section 165(d) is not applicable

because petitioner was engaged in a gambling trade or business

during the years in issue.    Petitioners further argue that even

if applicable, section 165(d) only limits deductions for losing

wagers and not other expenses incurred in a gambling trade or

business.   According to respondent, section 165(d) applies to all

gambling losses whether incurred in connection with a trade or

business or otherwise.   Furthermore, according to respondent,

section 165(d) limits deductions not only for losing wagers but

also for any otherwise deductible expense incurred in connection

with gambling transactions.

     In Offutt v. Commissioner, 16 T.C. 1214 (1951), we held that

the taxpayer, who was engaged in a gambling trade or business,

was entitled to deduct gambling losses only to the extent of

gambling winnings.   Further, we construed the phrase “losses from

wagering transactions” to include not only losing wagers but also

mailing, printing, and stenographic expenses.   In the line of

cases following Offutt, this and other Federal Courts have

consistently held that section 165(d), or its predecessor,

applies to gambling losses incurred in a trade or business and

limits deductions not only for losing wagers but also for other

expenses incurred in connection with gambling transactions.    See

Estate of Todisco v. Commissioner, 757 F.2d 1 (1st Cir. 1985),
                              - 5 -

affg. T.C. Memo. 1983-247 (holding that deductions for State

taxes attributable to gambling income are limited under section

165(d)); Kochevar v. Commissioner, T.C. Memo. 1995-607 (holding

that slot-machine players, even if considered to be in the trade

or business of gambling, could deduct gambling losses and

expenses, including automatic teller machine charges, office

supplies, travel mileage, and meals, only to the extent of their

winnings); Valenti v. Commissioner, T.C. Memo. 1994-483 (holding

that a deduction for losses incurred in wagering transactions is

subject to section 165(d) regardless of the fact that the

taxpayer was in the trade or business of gambling); Kozma v.

Commissioner, T.C. Memo. 1986-177 (construing the phrase “losses

from wagering transactions” as used in section 165(d) to include

expenses incurred by a professional gambler for transportation,

meals, lodging, admission fees, and office supplies).

     According to petitioners, the precedent established by the

Offutt line of cases should not be followed because the reasoning

expressed in those cases is based more upon a prejudicial view

towards gamblers and gambling than technical considerations.     We

disagree with the premise as well as the proposition.   We are

satisfied that following the precedent established by the above

line of cases leads to a result in this case that is supported by

the express language of section 165(d) and, although petitioners

suggest otherwise, entirely consistent with Congressional
                                 - 6 -

intent.2   For each year in issue, petitioners claimed Schedule C

deductions for losing wagers and related expenses that exceeded

the reported gains from wagering transactions.       Pursuant to

section 165(d), petitioners are entitled to deduct losing wagers

and related expenses only up to the amount of gains from wagering

transactions.   Respondent’s adjustments in this regard are

therefore sustained.

     To reflect the foregoing,

                                              Decision will be

                                         entered for respondent.




     2
        We note that for each year in issue petitioners reported
only those gains from wagering transactions evidenced by a Form
W-2G, Certain Gambling Winnings. We further note that only
certain gains from slot machine play require the issuance of a
Form W-2G. See sec. 31.3402(q)-1, Employment Tax Regs. Although
no issue has been presented on the point, given the nature of
slot machine play, we think it unlikely that all of petitioner’s
gains from slot machine play were subject to the issuance of a
Form W-2G. Lastly, we note that in enacting the predecessor of
section 165(d), the Congress was concerned that “taxpayers take
deductions for gambling losses but fail to report gambling
gains.” H. Rept. 704, 73d Cong., 2d Sess. (1934), 1939-1 C.B.
(Part 2) 554. Thus, one purpose of section 165(d) is to “force
taxpayers to report their gambling gains if they desire to deduct
their gambling losses.” Id.
