                        T.C. Memo. 1995-542



                      UNITED STATES TAX COURT



                 GREGORY ALBERICO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 21293-93.           Filed November 16, 1995.


     James W. Faber, for petitioner.

     William R. Davis, Jr., for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION



     FAY, Judge:   By notice of deficiency dated June 30, 1993,

respondent determined deficiencies in petitioner's income tax for

the taxable years 1990 and 1991, in the amounts of $21,478 and

$8,926, respectively, and accuracy-related penalties for the
                                - 2 -

taxable years 1990 and 1991 under section 6662(a)1.    The issues

for decision are:

     1. Whether petitioner is entitled to deductions for gambling

losses during the tax year 1990.    We hold that he is not.

     2. Whether petitioner failed to report gambling winnings for

the tax year 1991.    We hold that he did.

     3. Whether a penalty should be imposed against petitioner

under section 6662.    We hold that it should.

                           FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are incorpo-

rated herein by this reference.    At the time the petition was

filed, petitioner resided in Broomfield, Colorado.

     Petitioner is a professional gambler.    In 1972, after

serving three tours of duty in Vietnam, petitioner was stationed

as the Post Adjutant of Rocky Mountain Arsenal in Denver,

Colorado.    It was at this time that petitioner's gambling

activity started.    By 1977, petitioner had developed a gambling

addiction.    Petitioner was discharged from the military in 1978

after being convicted of stealing Government property to support

his gambling addiction.2    Petitioner was incarcerated twice for



     1
      All section references are to the Internal Revenue Code in
effect for the years in issue, unless otherwise indicated.
     2
      Petitioner testified that he declared the money he received
from the sale of the stolen Government property on his 1977
Federal income tax return.
                                - 3 -

theft of Government property, once from 1980 to 1984 and again

from 1986 to 1989.

     During 1990 and 1991, the years in issue, petitioner

frequented Colorado dog racing tracks and played the slot

machines in Las Vegas.   For 1990 and 1991, petitioner reported

his gambling winnings as $87,619 and $203,567, respectively, and

his gambling losses as $78,864 and $187,000, respectively.   The

winnings reported on petitioner's Federal income tax returns for

1990 and 1991 are in excess of the amounts stated as reported

income for gambling winnings3 on petitioner's Forms W-2G.4

     3
      For 1990 and 1991, petitioner reported $87,619 and $203,567
respectively as gambling winnings. However, petitioner's Form W-
2G income statements only showed petitioner winning $21,800.70
and $92,625.70, respectively.
     4
      The payer of proceeds from a wager must report gambling
winnings on Form W-2G if a taxpayer receives:
          (1)   $600 or more in gambling winnings from:
                (a)   Horse racing, dog racing, jai alai, state
                      lotteries, and other wagering transactions
                      * * * [in which] the winnings are at least
                      300 times the amount of the wager; or
                (b)   Lotteries, raffles, sweepstakes, wager-
                      ing pools, or drawings, such as those
                      held by churches or civic organizations;
          (2)   $1,200 or more of gambling winnings from
                bingo or slot machines; or
          (3)   $1,500 or more of * * * [winnings] from keno.
Instructions to Recipient for IRS Form W-2G, Statement for Recip-
ients of Certain Gambling Winnings.
     Under the general rule of sec. 3402(q) certain gambling
winnings are subject to withholding:
     Sec. 3402(q) Extension of Withholding to Certain
     Gambling Winnings.--
                                                  (continued...)
                                - 4 -

Petitioner testified that he reported income in excess of the

Form W-2G for both years in issue based upon his personal records


     4
      (...continued)
          (1) General rule.--Every person, including the
     Government of the United States, a State, or a
     political subdivision thereof, or any instrumentalities
     of the foregoing, making any payment of winnings which
     are subject to withholding shall deduct and withhold
     from such payment a tax in an amount equal to 20
     percent of such payment.
     *       *           *        *         *       *       *
          (3) Winnings which are subject to withholding.-
     For purposes of this subsection, the term "winnings
     which are subject to withholding" means proceeds from a
     wager determined in accordance with the following:
               (A) In general.--Except as provided in
          subparagraphs (B) and (C), proceeds of more than
          $1,000 from a wagering transaction, if the amount
          of such proceeds is at least 300 times as large as
          the amount wagered.
               (B) State-conducted lotteries.--Proceeds of
          more than $5,000 from a wager placed in a lottery
          conducted by an agency of a State acting under
          authority of State law, but only if such wager is
          placed with the State agency conducting such
          lottery, or with its authorized employees or
          agents.
               (C) Sweepstakes, wagering pools, certain
          parimutuel pools, jai alai, and lotteries.--
          Proceeds of more than $1,000 from--
                      (i) a wager placed in a sweepstakes,
                 wagering pool, or lottery (other than a wager
                 described in subparagraph (B)), or
                      (ii) a wagering transaction in a
                 parimutuel pool with respect to horse races,
                 dog races, or jai alai if the amount of such
                 proceeds is at least 300 times as large as
                 the amount wagered.
     *       *           *        *         *       *       *
          (5) Exemption for bingo, keno, and slot machines.--
     The tax imposed under paragraph (1) shall not apply to
     winnings from a slot machine, keno, and bingo.
                               - 5 -

of his gambling activities.   However, petitioner produced no

records showing his gambling results for 1990, except for his

1990 Federal income tax return.   For 1991, petitioner presented

dog racing programs covering part of the period during which he

gambled at the dog tracks.

     Petitioner testified that he had recorded in a notebook how

much he bet on each race in 1990, but, after his divorce, his ex-

wife or her new husband threw away all of the gambling records

that petitioner had stored in their house.   Petitioner offered no

evidence at trial to support this story.

     For 1991, petitioner stated that he maintained two sets of

records.   Petitioner's main set of records consisted of his daily

race programs in which he would record how much money he had to

bet that day, how much money he bet on each race, and how much he

won or lost.   The second set of records was a ledger in which

petitioner recorded his losses.   At trial, petitioner stated that

his 1991 ledger was inaccurate and was prepared solely for the

audit with respondent.

     In late 1992, the Internal Revenue Service, after examining

petitioner's race programs for January to June of 1991, requested

to examine petitioner's race programs for the second half of

1991.   Petitioner testified that he and his daughter delivered

the race programs to a gentleman handing out tax forms in the

lobby of the Internal Revenue Service office building and asked

the man to give the programs to Mr. Thomas Ellison, the auditor
                               - 6 -

handling his case.   Petitioner did not ask for nor receive a

receipt for these documents.   Several weeks later, petitioner

received a phone call from his accountant informing him that

Mr. Ellison could not locate the programs that petitioner claims

to have delivered to the Internal Revenue Service.   Petitioner

contends that the Internal Revenue Service lost his records when

they remodeled and moved the tax auditor's office to a different

part of the IRS building.   Neither party introduced evidence that

petitioner's programs were ever found.

     While petitioner claims that he and an adult daughter gave a

complete set of records to respondent, nothing in the record

corroborates it.   Additionally, petitioner's daughter never

testified, nor did the gentleman handing out the tax forms in the

lobby of the Internal Revenue Service office building.

     Based on the programs for January to June of 1991 that

respondent had received, respondent extrapolated the amount of

payouts of less than $1,000 ("small" winnings) for the period

without programs (July to December 1991) by applying the ratio of

"small" winnings to Form W-2G winnings from the period with pro-

grams, to the Form W-2G winnings.   Respondent then added this

amount, plus the winnings reported on the Form W-2G, the "small"

winnings reported in petitioner's programs, and petitioner's slot

machine winnings to determine petitioner's total gambling

winnings.
                                 - 7 -

     Likewise, based on the ratio of losses-to-winnings reflected

in petitioner's dog racing programs for January to June of 1991,

respondent determined that, for the additional gambling winnings

determined by extrapolation, petitioner was entitled to addi-

tional gambling losses, and respondent made such an adjustment in

the notice of deficiency.

                                OPINION

1990 Taxable Year

     Petitioner claimed $87,619 in gambling winnings and $78,864

in gambling losses on his 1990 return.      After audit, respondent

disallowed his claimed gambling losses in the notice of defi-

ciency.   Petitioner bases his challenge to the 1990 deficiency on

his claim for the Court to estimate his losses, citing Cohan v.

Commissioner, 39 F.2d 540 (2d Cir. 1930).

     Taxpayers have the burden of showing that they are entitled

to a gambling loss deduction.     Norgaard v. Commissioner, 939 F.2d

874, 878 (9th Cir. 1991), affg. in part, revg. in part T.C. Memo.

1989-390.   Section 6001 requires taxpayers to keep adequate

records to substantiate their income and deductions.      See also

sec. 1.6001-1(a), Income Tax Regs.       Absent production of adequate

records sustaining a taxpayer's claimed losses, taxpayers are not

entitled to any gambling deduction.       Norgaard v. Commissioner,

939 F.2d at 878; Conley v. Commissioner, T.C. Memo. 1992-215.

However, under the rule of Cohan v. Commissioner, supra at 543,

when a taxpayer fails to keep records, but a court is convinced
                                - 8 -

that deductible expenditures were made, it "should make as close

an approximation as it can, bearing heavily if it chooses upon

the taxpayer whose inexactitude is of his own making."

     Here, the parties do not dispute that petitioner failed to

produce any documents to support his claimed gambling losses for

1990.    Rather, petitioner testified that, at one time, he had

records, but either his ex-wife or her new husband had thrown

them away.    Thus, petitioner tries to fit within the framework of

the rule of Cohan by laying the blame at the feet of his ex-wife.

However, petitioner failed to call his ex-wife to testify.    Thus,

the Court did not have the opportunity to corroborate petition-

er's story.

     Unless the court has some proof that the taxpayer is

entitled to some deduction, the taxpayer should not be granted

relief. Williams v. United States, 245 F.2d 559, 560 (5th Cir.

1957).    Additionally, where "'there are no reliable figures from

which to calculate or extrapolate a reasonable estimate of * * *

[a taxpayer's] losses'", no such adjustment is warranted.    Metas

v. Commissioner, T.C. Memo. 1982-36 (quoting Plisco v. United

States, 306 F.2d 784, 787 (D.C. Cir. 1962)).    Here, the only

evidence presented to support petitioner's losses reported on his

1990 Federal income tax return was petitioner's own testimony.

Thus, although it logically follows that petitioner must have

sustained some losses considering his substantial gambling

activity, the complete absence of any documentation or other
                                 - 9 -

credible corroborating evidence concerning his gambling activ-

ities affords the Court no opportunity to estimate petitioner's

alleged sustained losses under the rule of Cohan v. Commissioner,

supra.   Accordingly, we hold that petitioner has failed to carry

his burden of proof with respect to the gambling loss substantia-

tion issue and that his gross gambling winnings are taxable as

determined by the Commissioner for the year in question.

1991 Taxable Year

     On his 1991 return, petitioner reported $203,567 in gambling

winnings and $187,000 in losses.    Attached to the return were

Forms W-2G reflecting $92,6265 in dog track winnings won by

petitioner and reported to respondent by the tracks.    After

audit, respondent determined that petitioner had failed to report

$137,946 in gambling winnings.    Respondent also made a correla-

tive adjustment, increasing petitioner's gambling losses by

$104,478.   Petitioner challenges the 1991 deficiency on the

grounds that respondent had no basis to suspect that petitioner

earned more income than reported, respondent inappropriately and

incorrectly applied extrapolation, and respondent is unable to

establish, using a net worth method or any other method, that

petitioner made or lost more than he reported on his 1991 Federal

income tax return.

     5
      The parties both stated that petitioner's Forms W-2G
attached to his 1991 Federal income tax return totaled $95,707 in
dog track winnings. However, the Forms W-2G attached to
petitioner's 1991 Federal income tax return received into
evidence totaled $92,625.70.
                              - 10 -

     Petitioner claims that for the 1991 tax year, he provided

respondent a complete set of original dog racing programs to

substantiate the income reported on his Federal income tax return

but that some of the programs were lost by respondent.6    However,

at trial, both of respondent's tax auditors who were working on

petitioner's audit, testified that they never received the pro-

grams for the second half of 1991.     Petitioner failed to present

any evidence to support his claim that he delivered these pro-

grams to respondent.   He presented no receipt for the programs

and offered no testimony or other evidence to corroborate his

story.   Thus, petitioner presented an incomplete picture of his

1991 gambling activities.

     When a taxpayer fails to maintain adequate books and

records, the Commissioner is authorized to reconstruct income by

any reasonable means which will clearly reflect income.     Holland

v. United States, 348 U.S. 121, 130-132 (1954); Conforte v. Com-

missioner, 74 T.C. 1160, 1181 (1980), affd. in part and revd. in

part 692 F.2d 587 (9th Cir. 1982).     Extrapolation is a permissi-

ble method of proving the volume of unreported wagers.     Gordon v.

Commissioner, 572 F.2d 193, 195 (9th Cir. 1977); Carson v. United

States, 560 F.2d 693 (5th Cir. 1977).




     6
      Petitioner also provided respondent with a ledger showing
petitioner's net winnings or losses for each day that he gambled,
and the cumulative running total of petitioner's net winnings or
losses for the year. However, petitioner admitted both at the
audit and at trial that the ledger was inaccurate.
                                - 11 -

     Here, petitioner failed to maintain adequate records to

determine his correct tax liability for the 1991 taxable year. In

order to determine petitioner's correct tax liability, respondent

reasonably used petitioner's dog racing programs for the first

half of 1991 to reconstruct, through extrapolation, petitioner's

gambling winnings and losses for 1991.      Accordingly, we hold that

petitioner has failed to substantiate the accuracy of his 1991

Federal income tax return and that his net gambling winnings are

taxable as determined by the Commissioner for the year in

question.

Negligence Penalty

     Respondent determined that petitioner was negligent under

section 6662(a) in claiming a deduction for gambling losses for

the tax year 1990 and in failing to properly report his gambling

income for the tax year 1991.     For purposes of section 6662(a),

the term "negligence" includes any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue

Code, and "disregard" includes any careless, reckless or

intentional disregard.     Sec. 6662(c).   Negligence frequently

takes the form of failure to report income or overstatement of

deductions.   Marcello v. Commissioner, 380 F.2d 509 (5th Cir.

1967); Estate of Mason v. Commissioner, 64 T.C. 651 (1975), affd.

566 F.2d 2 (6th Cir. 1977); Beus v. Commissioner, 261 F.2d 176

(9th Cir. 1958).     Understatement of income or overstatement of

deductions often reflects the inadequacy of the taxpayer's
                               - 12 -

records, which is in itself a basis for imposing the penalty.    A

taxpayer is required to maintain records sufficient to establish

information provided on a tax return.    Sec. 1.6001-1(a), Income

Tax Regs.    Therefore, failure to keep adequate records is

evidence not only of negligence, but of intentional disregard of

the regulations.    Marcello v. Commissioner, supra, Magnon v.

Commissioner, 73 T.C. 980 (1980).    Here, the taxpayer failed to

maintain records sufficient to establish the amount of gambling

winnings and losses on both his 1990 and 1991 Federal income tax

returns.    Accordingly, we hold for respondent.

                                          Decision will be entered

                                     under Rule 155.
