                       T.C. Memo. 2009-226



                      UNITED STATES TAX COURT



                 ANN M. LAPLANTE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17591-07.             Filed October 1, 2009.



     Joseph Fitzgibbons, for petitioner.

     Paul Colleran, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     GOLDBERG, Special Trial Judge:   Respondent determined a

deficiency of $1,808 in petitioner’s Federal income tax for 2004

and an accuracy-related penalty of $362 under section 6662(a) for

negligence.

     The deficiency arises from petitioner’s reporting of her

2004 recreational gambling activities.   Petitioner reported

$4,000 in income from gambling winnings on her 2004 Form 1040,
                                 - 2 -

U.S. Individual Income Tax Return, and she deducted $4,000 in

gambling losses on her 2004 Schedule A, Itemized Deductions,

under “Other Miscellaneous Deductions”.    After examination,

respondent determined that petitioner should have reported

$30,170 in gross income from gambling winnings, causing an

automatic computational increase in the amount of petitioner’s

Social Security benefits includable in income, and petitioner

should have deducted $30,170 in gambling losses for 2004.

     As a result, the issues for decision are:    (1) Whether

petitioner’s gambling winnings for 2004 were $30,170 as

respondent determined; and (2) whether petitioner is liable for

the section 6662(a) accuracy-related penalty for negligence for

2004.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code (Code), and all Rule references are to

the Tax Court Rules of Practice and Procedure.    All amounts are

rounded to the nearest dollar.

                        FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioner resided in

Massachusetts at the time she filed her petition.

     Petitioner is a widow and is retired.    She worked for 48

years from 1950 to 1998 for John C. Tombarello & Sons, a scrap
                                - 3 -

iron and metal facility in Lawrence, Massachusetts, retiring when

the owners sold the business.   Before the sale, the business

employed 35 to 40 people.   Petitioner’s original duties included

bookkeeping, but as the business grew she became the office

manager and had a bookkeeper reporting to her.

     When petitioner gambles, she enjoys playing the slot

machines.   She began slot machine gambling in earnest in 1988 on

a trip to Las Vegas.   While she was still employed, petitioner

would vacation a couple of times a year in Las Vegas and would

also travel to Atlantic City to gamble.      After Foxwoods Resort

Casino opened in Ledyard, Connecticut, in 1992 and after

petitioner retired from her job, she eventually became a regular

Foxwoods patron.

     Petitioner participated in Foxwoods’ loyalty program, which

provided her with a Wampum Club card.      Petitioner would insert

the Wampum Club card into a slot machine, and the casino would

track her play.    She would receive Wampum points on the basis of

the time she spent at the machines, not on the basis of the

amount of money she spent or lost.      Foxwoods has restaurants,

hotel rooms, stores, and boutiques.      Petitioner would use the

Wampum points to purchase clothing and jewelry.      Foxwoods would

also provide petitioner at no charge complimentary (commonly

called comp) meals, rooms, and occasional limousine rides from

her home to and from the casino.
                                - 4 -

     During 2004 petitioner traveled with a group of friends to

Foxwoods on 25 to 30 separate occasions.    Petitioner’s normal

practice was to spend at least 8 hours at the casino and then

return home.    Sometimes she would stay longer and return home

after spending 2 or more full days at the casino.    Typically,

petitioner would start at 25 cents per wager, progress to 50

cents, then $1, and finally $5 per wager.

     Whenever she won $1,200 or more from one pull (or push of a

button), the casino would promptly provide her with a Form W-2G,

Certain Gambling Winnings, reflecting her winnings from that one

pull or push.   During 2004 petitioner received 26 Forms W-2G,

which reported winnings totaling $56,200.    Petitioner received a

Form W-2G on 22 separate days in 2004.    On 4 days petitioner won

two prizes of $1,200 or more, causing the casino to issue two

Forms W-2G for those 4 days.    A review of the dates from

petitioner’s summary of the Forms W-2G indicates that petitioner

gambled at Foxwoods on many different days of the week, receiving

at least one Form W-2G on 5 Sundays, 11 Mondays, 1 Tuesday, 2

Wednesdays, and 3 Saturdays.

     Petitioner engaged an attorney to prepare her 2004 Federal

income tax return, the same attorney she had used to prepare her

prior years’ returns.   Attached to the return was a two-page

document entitled “MEMORANDUM Re: W-2G” addressing petitioner’s

2004 gambling activity.   The first page detailed by date and
                                - 5 -

amount the winnings on each of the 26 Forms W-2G totaling

$56,200.    The second page was a legal memorandum providing the

attorney’s rationale for petitioner’s including only $4,000 of

the gambling winnings in her 2004 income.   Petitioner did not

discuss or report in income any of her gambling winnings below

$1,200; neither did she include in income the fair market value

of meals, rooms, limousine rides, clothing, jewelry, and the

other comps she received from Foxwoods.

     Petitioner reported adjusted gross income totaling $36,111

for 2004.   In addition to the $4,000 in gambling winnings,

petitioner’s other items of income for 2004 were:   Interest of

$2,262; dividends of $755; refunds of State and local income

taxes of $158; capital gain distributions of $78; IRA

distributions of $7,197; pension and annuities of $11,367; net

income from rental real estate of $1,663; and Social Security

benefits of $22,758, of which $8,631 was includable in income.

Petitioner also claimed itemized deductions of $12,638 on

Schedule A, of which pertinent here was a deduction of $4,000 for

gambling losses.

     Respondent examined petitioner’s 2004 Federal income tax

return, determining that the correct amount of her gambling

winnings and losses for 2004 was $30,170.   The $30,170 consists

of the total of 11 of 26 Form W-2G amounts, but the record is
                               - 6 -

silent as to why respondent chose to exclude some of the Forms W-

2G and how respondent determined which ones to exclude.

     Because of the adjusted gross income thresholds in section

86, Social Security and Tier 1 Railroad Retirement Benefits, the

additional $26,170 in wagering income caused a computational

increase to the portion of petitioner’s $22,758 in Social

Security benefits includable in income from $8,631 (38 percent)

to $19,345 (85 percent).   As a result, respondent issued a notice

of deficiency determining a deficiency of $1,808 in Federal

income tax for 2004 and an accuracy-related penalty of $362 for

negligence.   Petitioner timely petitioned the Court seeking a

redetermination of the deficiency and the accuracy-related

penalty.

     At trial the Court received into evidence two documents

purporting to support petitioner’s claim of receiving only $4,000

in gambling winnings and $4,000 in gambling losses.   One document

was an undated and untitled two-page worksheet with 33 specific

dates in 2004 reflecting a dollar amount in at least one of four

columns showing:   (1) Checks she cashed at the casino totaling

$14,600; (2) markers totaling $42,000, which represent cash

advances the casino provided to petitioner during her play in

exchange for petitioner’s authorization for the casino to

withdraw reimbursement within 2 weeks from her checking account;

(3) money market checks totaling $61,100, which petitioner cashed
                                - 7 -

before her trips to the casino to have about $2,000 to $3,000 in

cash on hand when she began each visit; and (4) deposits she

returned to the checking account totaling $28,600.

     With respect to the deposit column, the worksheet contains a

notation immediately to the right of three of the seven deposits.

Next to the August 31 deposit of $2,000 is the notation

“winnings”, and next to the November 17 and December 11 deposits

of $10,000 and $4,000, respectively, are notations indicating the

deposits were transfers of funds from her money market account.

The other four deposits totaling $14,600 have no notation next to

them.    An IRS date stamp on petitioner’s 2004 Federal income tax

return shows that respondent received petitioner’s return on

October 15, 2005.   The record does not clarify whether petitioner

prepared the worksheet around the end of 2004, near her tax

return filing date of October 15, 2005, or in preparation for

trial.

     The second document is a letter dated February 22, 2005,

from Foxwoods Resort Casino to petitioner printed on plain paper,

not on Foxwoods’ letterhead.   The letter states that petitioner’s

win or loss total from table games was zero and that she lost a

total of $35,480 at slot machines during 2004.   The letter

explained that “the total slot machine activity is the total coin

deposited in the machines, less the total coin paid out, and less

jackpots paid by hand with currency.”   The letter advised that
                               - 8 -

the “information is derived from the use of your Wampum Club Card

as recorded in Foxwoods Resort Casino’s player rating system,

which is maintained for marketing purposes only.”

                              OPINION

I.   Reporting of Gambling Winnings and Losses

     Gambling winnings are includable in gross income.    Sec.

61(a); Merkin v. Commissioner, T.C. Memo. 2008-146.    The Code

treats gambling losses in one of two ways.    Taxpayers engaged in

the trade or business of gambling may deduct their gambling

losses against their gambling winnings above the line as a trade

or business expense in arriving at adjusted gross income.    Sec.

62(a)(1); Merkin v. Commissioner, supra.     In contrast, taxpayers

who are not in the trade or business of gambling are typically

called recreational or casual gamblers and may deduct their

gambling losses less favorably below the line as an itemized

deduction in arriving at taxable income.   Sec. 63(a); Merkin v.

Commissioner, supra.   Irrespective whether the taxpayer is a

professional or a casual gambler, “Losses from wagering

transactions shall be allowed only to the extent of the gains

from such transactions.”   Sec. 165(d); Merkin v. Commissioner,

supra; sec. 1.165-10, Income Tax Regs.

     Petitioner was a recreational gambler in 2004.    See

generally Merkin v. Commissioner, supra.     Petitioner argues for a

different methodology for reporting her gambling winnings and
                               - 9 -

losses.   Petitioner contends the summation of her individual

gambling wins does not accurately reflect true winnings because

she promptly plowed the individual winnings back into the

casino’s slot machines.   In petitioner’s view, a gambling session

is not complete until the gambler finishes gambling for the day

or weekend or weeklong visit to the casino and leaves the casino

at the conclusion of the visit with either a net win or loss.

     Petitioner emphasizes that the tracking of individual wins

and losses is unrealistic when placing many bets at slot machines

during a long session of plays.   As a result, according to

petitioner a gambler should net the winnings and losses from each

visit to the casino.   On those visits where the gambler leaves

with more money than the gambler brought to the casino (here and

for the rest of this opinion the term “brought” encompasses a

broad definition to include cash in the gambler’s pocket when the

gambler arrived at the casino plus cash the gambler added at the

casino from markers, ATM draws, credit card advances, and cashing

checks), the gambler should recognize the net winnings for the

visit in a single amount.   The gambler should then total the net

winning visits in a year to determine an aggregate amount to

include in income as gambling winnings for that year.

     Similarly, in those instances where the gambler leaves the

casino with less money than brought, the gambler should recognize

a net loss for the visit.   The gambler should then aggregate the
                               - 10 -

net amounts from losing visits for the year and may deduct the

total losses as an itemized deduction up to the total winnings

from the successful gambling sessions for the year.

     Applying her theory to her own situation, petitioner

determined her $4,000 in gambling winnings and losses for 2004 in

the following manner.   Petitioner claims that on only one

occasion in her 25 to 30 visits did she leave the casino with

more money than she brought.   On that one occasion, she won a

single jackpot of $8,000 on Monday, August 30, 2004, of which

Foxwoods held back 25 percent or $2,000 for petitioner’s Federal

income tax withholding.   Petitioner claims she gambled and lost

$4,000 of the winnings, and left the casino with the remaining

$2,000.   Consequently, according to petitioner her one net win of

$2,000 plus the $2,000 in withholding represents her sole

gambling winnings for the year totaling $4,000.

     With respect to gambling losses for 2004, petitioner

contends that she broke even or lost money on every one of her

other 24 to 29 visits to the casino during the year.   Petitioner

claims her losses totaled much more than $4,000, but pursuant to

the gambling loss limitation of section 165(d) she limited her

gambling losses to the amount of her gambling winnings, $4,000,

and deducted the $4,000 gambling loss as an itemized deduction

for 2004.
                              - 11 -

     In general, casual gamblers such as petitioner should report

the gross amount of their gambling winnings as income and should

deduct separately as an itemized deduction the gross amount of

their gambling losses up to the amount of gambling winnings.     See

Merkin v. Commissioner, supra (taxpayers not in the trade or

business of gambling may report gambling losses only as an

itemized deduction); Hardwick v. Commissioner, T.C. Memo. 2007-

359 (same); Lutz v. Commissioner, T.C. Memo. 2002-89 (“It is well

settled that taxpayers [who are recreational gamblers] have a

duty to report as gross income gambling winnings” and “gambling

losses must be claimed as itemized deductions”).

     Respondent nonetheless agrees with petitioner’s theory of

recognizing slot machine play on the basis of net wins or losses

per visit to the casino.   Specifically, respondent states the

following:

     [T]he better view is that a casual gambler playing a
     slot machine, such as the petitioner, recognizes a
     wagering gain or loss at the time she redeems her
     tokens. The fluctuating wins and losses left in play
     are not accessions to wealth until the taxpayer redeems
     her tokens and can definitively calculate the amount
     above or below basis (the wager) realized. See
     Commissioner v. Glenshaw Glass Co., 348 U.S. 426
     (1955).

     Respondent’s agreement, however, does not mean petitioner

wins the day.   Respondent argues instead that petitioner’s

contentions fail because petitioner did not maintain adequate
                                - 12 -

records to substantiate her claims of net gambling winnings and

losses.

      We do not have to decide and we explicitly do not decide the

propriety of petitioner’s theory of income recognition from

recreational slot machine play because, as discussed below, we

agree with respondent that with respect to 2004, petitioners did

not maintain adequate records to substantiate her claims of net

gambling winnings and losses.    Thus, in its essence this case is

solely one of substantiation.    See Gagliardi v. Commissioner,

T.C. Memo. 2008-10 (concluding that that gambling case was solely

“a substantiation case”, with the sole issue being whether the

taxpayer had substantiated the gambling losses which the

Commissioner had disallowed).

II.   Substantiation of Gambling Winnings

      Petitioner’s situation is different from the usual gambling

case where the taxpayer tries to prove gambling losses greater

than the amount the Commissioner allowed.    See, e.g., Briseno v.

Commissioner, T.C. Memo. 2009-67; Gagliardi v. Commissioner,

supra; Hardwick v. Commissioner, supra.     Petitioner is already at

the maximum of losses that section 165(d) allows (gambling losses

may not exceed reported gambling winnings).    Instead, to refute

respondent’s determination, petitioner must establish that she

had less than the $30,170 in gambling winnings that respondent

determined.
                               - 13 -

     In general, the Court presumes the Commissioner’s

determination of a deficiency in a notice of deficiency is

correct, and the burden is on the taxpayer to prove otherwise.

Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Under certain circumstances the taxpayer may shift the burden to

the Commissioner regarding factual matters affecting tax if the

taxpayer produces credible evidence and meets the other

requirements of the section including maintaining records

required by the Code.   Sec. 7491(a).   Petitioner does not argue

that she satisfied the elements for a burden shift, but even if

she did advance this argument, petitioner did not produce

sufficient substantiation to support her claims as section 6001

requires.   See Higbee v. Commissioner, 116 T.C. 438, 443 (2001).

Accordingly, the burden of proof remains on petitioner to prove

the $30,170 in gambling winnings that respondent determined for

2004 was in error.   With respect to the accuracy-related penalty,

the burden of production is on respondent.   See sec. 7491(c).

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving entitlement to deductions

claimed on a return.    Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).    Implicit in this burden is

the requirement that taxpayers must prove the amount of gambling

winnings as well as losses.    Schooler v. Commissioner, 68 T.C.
                              - 14 -

867, 869 (1977); Donovan v. Commissioner, T.C. Memo. 1965-247,

affd. per curiam 359 F.2d 64 (1st Cir. 1966).

     Section 6001 and the regulations thereunder require

taxpayers to keep permanent records sufficient to substantiate

the amounts of income, deductions, and credits shown on their

income tax returns.   Sec. 1.6001-1(a), Income Tax Regs.   The

obligation to maintain sufficient supporting records for wagering

transactions is no more onerous than the recordkeeping

requirements for taxpayers engaged in daily activities such as

business travel and entertainment.     Schooler v. Commissioner,

supra at 870-871; see also Rodriguez v. Commissioner, T.C. Memo.

2001-36.

     Petitioner’s evidence consists of the following three items:

(1) The undated four-column worksheet that petitioner prepared;

(2) the February 22, 2005, letter from Foxwoods; and (3)

petitioner’s oral testimony that on only one occasion did she

leave the casino with more money that she wagered.    We review in

turn each of these three pieces of evidence.

     Petitioner relies on the four-column worksheet with the

written notation “winnings” next to one deposit of $2,000 as the

documentary evidence that only one of her visits to Foxwoods in

2004 resulted in a net win, and the amount of that win was $4,000

(including the $2,000 in Federal tax withholding).    However,

shortcomings exist with respect to this evidence.    No valid
                              - 15 -

reason exists for taxpayers engaged in wagering transactions not

to maintain a contemporaneous gambling diary or gambling log.

Schooler v. Commissioner, supra at 870-871.     Petitioner

acknowledged that she did not prepare the worksheet

contemporaneously, stating that she tried to “keep up with it

[her recordkeeping] daily, but if not, it would have to be

yearly.   It would be a lot easier to go through it yearly.”

Petitioner was not specific as to whether she prepared the

worksheet around the end of the 2004 calendar year, 10 months

later when she filed her 2004 return, or 3 years later in

preparation for trial.

     Additionally, the worksheet was untitled, had no explanation

of its purpose, and did not explain many items on the document.

For instance, the worksheet showed $14,600 of deposits with no

explanation, which may have been additional gambling winnings.

Similarly, petitioner did not reconcile the worksheet to the

winnings Foxwoods reported on the Forms W-2G.

     Moreover, petitioner did not provide copies of bank

statements, canceled checks, or other corroborating evidence to

establish the accuracy of individual line items on the worksheet

or to establish the completeness of the worksheet by reconciling

the worksheet to figures supplied by the bank.    Without support,

the worksheet is unreliable to corroborate petitioner’s claims.
                              - 16 -

     The February 22, 2005, letter from Foxwoods also has

shortcomings.   The letter reports that petitioner lost a total of

$35,480 at the slots during 2004.   However, the letter provides

no detail by which we could determine which of petitioner’s 25 to

30 visits to the casino for the year were a net win or a net

loss.   Since the net win or loss per visit is the mainstay of

petitioner’s argument, and since Foxwoods’ letter stated the

casino was tracking petitioner’s results, we find it curious that

petitioner did not ask Foxwoods to provide, or that petitioner

did not supply to the Court, a more detailed statement from

Foxwoods showing the results for each visit.   In summary, the

letter is helpful in confirming the overall picture that

petitioner lost money for 2004, a point not in dispute, but the

letter does not shed light on the decisive matter regarding which

of petitioner’s visits were net wins or losses and in what

amounts.

     With respect to petitioner’s testimony, petitioner claims

that she walked away a winner from Foxwoods on only 1 of her 25

to 30 visits to the casino during 2004.   Given the nature of

gambling, where the house usually wins; Foxwoods’ letter stating

petitioner’s overall losses for 2004; and petitioner’s credible

testimony, we find it likely that she lost money on most of her

visits to the casino during 2004.   However, a general tenor is

not the same as accepting petitioner’s unsupported assertion of
                               - 17 -

precisely $4,000 in income from just one win.    See Crepeau v.

Commissioner, 438 F.2d 1228 (1st Cir. 1971) (uncontradicted oral

testimony is not adequate to overcome insufficiently supported

taxpayer statements), affg. T.C. Memo. 1969-236; Niedringhaus v.

Commissioner, 99 T.C. 202, 212 (1992) (we need not accept a

taxpayer’s testimony in the absence of corroborating evidence).

     We also note that petitioner did not call as a witness any

friend with whom she traveled to Foxwoods to corroborate her

testimony.    The failure to call witnesses leads to an inference

that if called they would testify adversely.    Interstate Circuit,

Inc. v. United States, 306 U.S. 208, 226 (1939); Bresler v.

Commissioner, 65 T.C. 182, 188 (1975); Blum v. Commissioner, 59

T.C. 436, 440-441 (1972); Wichita Terminal Elevator Co. v.

Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th

Cir. 1947).

     Moreover, respondent has already reduced the gambling

winnings that Foxwoods reported for 2004 on the Forms W2-G, from

$56,200 to $30,170.    Petitioner has simply not provided

sufficient corroborating evidence to make an estimate beyond the

reduction respondent has already determined.    See Hardwick v.

Commissioner, T.C. Memo. 2007-359 (the Court should not make an

estimate in a gambling case where the taxpayer’s substantiation

has too many omissions and discrepancies, especially where the

taxpayer could have simply provided evidence from use of a casino
                               - 18 -

Players’ Club card to document slot machine play during each

gambling trip).    Further, respondent made the reduction even

though petitioner almost certainly had many winnings below the

Form W2-G threshold amount of $1,200 and despite petitioner’s

receiving comps from Foxwoods for some meals, hotel stays,

limousine rides, and shopping.     See Libutti v. Commissioner, T.C.

Memo. 1996-108 (comps are “increases to * * * wealth” and

therefore fall within the plain meaning of section 165(d) as

gains from wagering transactions).

       In summary, we find that petitioner has not met her burden

of proving that respondent’s determination is incorrect.    Because

petitioner has not provided a reasonable basis to estimate which

of her visits to the casino resulted in a net win or a net loss,

or the dollar amount of each outcome, to reduce income more than

respondent has already done would be unguided largesse.

Therefore, we sustain respondent’s determination.

III.    Accuracy-Related Penalty

       Respondent also determined that petitioner is liable for a

20-percent accuracy-related penalty under section 6662(a) and

(b)(1) for 2004 for an underpayment of income tax that results

either from negligence or disregard of rules and regulations.

The term “negligence” includes any failure to make a reasonable

attempt to comply with the provisions of the Code, and the term

“disregard” includes any careless, reckless, or intentional
                               - 19 -

disregard.   Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.

Negligence is also “‘a lack of due care or the failure to do what

a reasonable and ordinarily prudent person would do under the

circumstances.’”    Freytag v. Commissioner, 89 T.C. 849, 887

(1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. in part and remanding in part 43 T.C. 168

(1964) and T.C. Memo. 1964-299), affd. 904 F.2d 1011 (5th Cir.

1990), affd. 501 U.S. 868 (1991).

     As noted, the Commissioner bears the burden of production

with respect to penalties.   Sec. 7491(c).   To meet this burden,

the Commissioner must produce evidence to show that it is

appropriate to impose the relevant penalty.     Swain v.

Commissioner, 118 T.C. 358, 363 (2002); Higbee v. Commissioner,

116 T.C. at 446.    Respondent has met his burden by establishing

that petitioner did not keep adequate records as required by

section 6001 to substantiate the amount of gambling income she

reported on her 2004 Federal income tax return.

     Nonetheless, a taxpayer may overcome the accuracy-related

penalty if the taxpayer can show that the underpayment of income

tax was due to “reasonable cause * * * and that the taxpayer

acted in good faith”.   Sec. 6664(c)(1).   The taxpayer bears the

burden of proving reasonable cause.     Higbee v. Commissioner,

supra at 446-447.   The Court decides reasonable cause and good-

faith effort on a case-by-case basis, taking into account all
                              - 20 -

pertinent facts and circumstances, including the extent of the

taxpayer’s efforts to assess his or her proper tax liability; the

taxpayer’s education, knowledge, and experience; and the

taxpayers’ reasonable reliance on a tax professional.      Higbee v.

Commissioner, supra at 448; Sec. 1.6664-4(b)(1), Income Tax Regs.

The extent of the taxpayer’s efforts to assess the proper tax

liability is generally the most important factor.   Sec.

1.6664-4(b)(1), Income Tax Regs.

     Good faith reliance on professional advice concerning tax

laws may provide a basis for a reasonable cause defense.      United

States v. Boyle, 469 U.S. 241, 250-251 (1985); see also sec.

1.6664-4(b)(1), Income Tax Regs.   Reliance on professional advice

is not an absolute defense to the section 6662(a) penalty.

Freytag v. Commissioner, supra at 888.   Reasonable cause exists

where a taxpayer relies in good faith on the advice of a

qualified tax adviser where the following three elements are

present:   “(1) The adviser was a competent professional who had

sufficient expertise to justify reliance, (2) the taxpayer

provided necessary and accurate information to the adviser, and

(3) the taxpayer actually relied in good faith on the adviser’s

judgment.”   Neonatology Associates, P.A. v. Commissioner, 115

T.C. 43, 99 (2000), affd. 299 F.3d 221 (3d Cir. 2002).

     Petitioner made a good-faith effort to determine the proper

tax by engaging an attorney to prepare her return, the same
                               - 21 -

attorney who had prepared her prior returns which respondent

never challenged.    Petitioner’s attorney was certainly competent:

respondent agreed with the attorney’s theory of the case that

taxpayers should recognize results from slot machine play on the

basis of net wins or losses per visit to the casino.

     Petitioner’s overall story is also credible, albeit

unsupported.    That she probably did lose money on most of her

visits to the casino is reflected in the fact that respondent

reduced the amount of petitioner’s winnings for 2004 from $56,200

to $30,170, and reflected in a reduction from 26 to 11 in the

number of Forms W-2G that respondent required petitioner to

recognize for 2004.

     Petitioner disclosed all of her $56,200 of Form W-2G

winnings to her attorney.    Petitioner relied in good faith on the

attorney’s judgment, disclosing to respondent on her 2004 Federal

income tax return the Forms W-2G that led to the $56,200 total

and attaching a memorandum describing the attorney’s theory of

netting wins and losses per visit to the casino.    “To require the

taxpayer to challenge the attorney, to seek a ‘second opinion,’

or to try to monitor counsel on the provisions of the Code

himself would nullify the very purpose of seeking the advice of a

presumed expert in the first place.”    United States v. Boyle,

supra at 251.
                              - 22 -

     In summary, we conclude that petitioner has done what a

reasonable person would do under the circumstances to determine

the proper tax.   Therefore, on the basis of the record before us,

for all of the above reasons, we find that petitioner had

reasonable cause and acted in good faith.   We do not sustain

respondent’s determination of an accuracy-related penalty for

2004.

     To reflect our disposition of the issues,


                                         Decision will be entered

                                    for respondent as to the

                                    deficiency and for

                                    petitioner as to the

                                    accuracy-related penalty.
