                         T.C. Memo. 2009-67



                      UNITED STATES TAX COURT



                 JAYNE A. BRISENO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17363-06.              Filed March 26, 2009.



     Jayne A. Briseno, pro se.

     Michael S. Hensley, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined deficiencies and

additions to tax with respect to petitioner’s 1999, 2001, and

2002 (years at issue) Federal income taxes as follows:1


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue. Rule
references are to the Tax Court Rules of Practice and Procedure.
                                                   (continued...)
                                 -2-

                                    Additions to Tax
                              Sec.          Sec.           Sec.
Year       Deficiency      6651(a)(1)    6651(a)(2)        6654

1999         $2,782            $626            $70         $135
2001         61,249          13,822          1,505        2,455
2002        170,136          38,281          4,253        5,685

       After concessions,2 the issues for decision are:   (1)

Whether petitioner received gambling income and is entitled to

deduct gambling losses; (2) whether petitioner is entitled to

dependency exemption deductions for her sons, head of household

filing status, and child tax credits; (3) whether petitioner is

entitled to itemized deductions including deductions for home

mortgage interest and real estate taxes; and (4) whether

petitioner is liable for additions to tax under sections

6651(a)(1) and 6654.

                          FINDINGS OF FACT

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

The stipulation of facts and the exhibits attached thereto are

incorporated herein by this reference.   At the time she filed her

petition, petitioner resided in California.




       1
      (...continued)
Amounts are rounded to the nearest dollar.
       2
      Petitioner conceded that she received $100 of interest
income in 1999 and $29,500 of capital gains in 2001. Respondent
conceded that petitioner is not a professional gambler and
therefore is not liable for self-employment tax. Respondent also
conceded that petitioner is not liable for the additions to tax
under sec. 6651(a)(2).
                                 -3-

     Petitioner is a recreational gambler who played slot

machines at various casinos during the years at issue.   Those

casinos issued her Forms W-2G, Certain Gambling Winnings,

reporting that she received winnings of $13,240 in 1999, $139,714

in 2001, and $459,397 in 2002.   During at least a portion of the

years at issue she also was employed selling fasteners such as

nuts and bolts.3

     Petitioner is the mother of two children:   Dustin, who was

born in 1980 and Johnny, who was born in 1985.   During the years

at issue Johnny lived with petitioner, and she was his primary

source of support.   Dustin also lived with petitioner except when

he was away at college.   Nevertheless, she was his primary source

of support.

     Petitioner did not file Federal income tax returns for 1999

through 2002, nor did she make estimated tax payments or have any

income tax withheld during the years at issue.   Shortly before

trial petitioner prepared Forms 1040, U.S. Individual Income Tax

Return, for the years at issue, but they have not been filed with

respondent.

     Each of the returns states that petitioner received gambling

income in amounts equal to or slightly less than the amounts




     3
      The notices of deficiency do not include any income from
petitioner’s employment, and respondent has not otherwise alleged
that petitioner received employment income.
                                  -4-

reported on the Forms W-2G.4    Her 1999 return includes gambling

losses equal to her reported winnings.    Her 2001 and 2002 returns

include gambling losses of $126,924 and $413,279, respectively,

indicating that petitioner’s net gambling income in those years

was at least $12,790 and $45,218, respectively.    Petitioner’s

returns did not include any additional income except a $29,500

capital gain in 2001.

     After receiving notices of deficiency for the years at

issue, petitioner filed a timely petition with this Court and

trial was held in San Diego, California.

                                OPINION

A.   Gambling Winnings and Losses

     In cases of unreported income, the Court of Appeals for the

Ninth Circuit, to which an appeal in this case would lie,

requires that the Commissioner provide a minimal evidentiary

foundation connecting the taxpayer with the unreported income

before the presumption of correctness attaches to the

Commissioner’s determination.    See Hardy v. Commissioner, 181

F.3d 1002, 1004 (9th Cir. 1999), affg. T.C. Memo. 1997-97;

Weimerskirch v. Commissioner, 596 F.2d 358, 360-361 (9th Cir.

1979), revg. 67 T.C. 672 (1977).    Once the Commissioner has met

this initial burden, the taxpayer must establish by a

     4
      Petitioner’s 2002 return states that she received $458,497
of gambling winnings in 2002, $900 less than the total reported
on the Forms W-2G. Petitioner offered no explanation for the
difference.
                                 -5-

preponderance of the evidence that the Commissioner’s

determination is arbitrary or erroneous.    See Hardy v.

Commissioner, supra at 1004.

     Gross income includes all income from whatever source

derived, including gambling.    See sec. 61; McClanahan v. United

States, 292 F.2d 630, 631-632 (5th Cir. 1961).    In the case of a

taxpayer not engaged in the trade or business of gambling,

gambling losses are allowable as an itemized deduction, but only

to the extent of gains from such transactions.    Sec. 165(d).   To

establish entitlement to a deduction for gambling losses the

taxpayer must prove the losses sustained during the taxable year.

Mack v. Commissioner, 429 F.2d 182 (6th Cir. 1970), affg. T.C.

Memo. 1969-26.

     Respondent provided Forms W-2G showing that petitioner

received slot machine winnings in the amounts determined in the

notice of deficiency.    Furthermore, petitioner’s returns prepared

before trial serve as an admission that petitioner received the

winnings.   Accordingly, we conclude that petitioner received

gambling winnings in the amounts determined by respondent.

     Although petitioner alleged that she maintained

contemporaneous gambling logs, she was unable to produce any

evidence of a log or any other contemporaneous evidence of her

winnings and losses.    Accordingly, we conclude that petitioner
                                 -6-

has failed to satisfy her burden of substantiating her gambling

losses.

       As a general rule, if the trial record provides sufficient

evidence that the taxpayer has incurred a deductible expense, but

the taxpayer is unable to substantiate adequately the precise

amount of the deduction to which he or she is otherwise entitled,

the Court may estimate the amount of the deductible expense, and

allow the deduction to that extent.    Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85

T.C. 731, 742-743 (1985); sec. 1.274-5T(a), Temporary Income Tax

Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).    In these instances,

the Court may make as close an approximation of the allowable

expense as it can, bearing heavily against the taxpayer whose

inexactitude is of his or her own making.    Cohan v. Commissioner,

supra at 544.

       Petitioner received her gambling winnings from playing slot

machines.    During the years at issue she won a few jackpots

larger than $10,000, but most of her winnings were of amounts

between $1,000 and $4,000.    In other words, she did not receive

her winnings in one, or even a few, large jackpots.    She gambled

frequently and when she won she would often “reinvest” those

winnings in the slot machines, losing much or all of what she had

won.    We regard it as a virtual certainty that petitioner,

playing a game of chance frequently over the course of several
                                -7-

years, placed many losing bets in addition to her winning ones.

Furthermore, we do not find that petitioner lived a lavish

lifestyle or had significant accession to wealth.

     We are not aware of a case in which a taxpayer received

winnings from a game of chance of the magnitude petitioner

received, but was not entitled to a penny of offsetting loss.

For example, in Jackson v. Commissioner, T.C. Memo. 2007-373, the

taxpayer received $265,795 of slot machine winnings and the

Commissioner conceded $127,165 of related losses.   In Hardwick v.

Commissioner, T.C. Memo. 2007-359, the taxpayers received

$308,400 of slot machine winnings and the Commissioner conceded

$170,215 of losses.   In Lutz v. Commissioner, T.C. Memo. 2002-89,

the taxpayer received slot machine winnings of $144,645 and the

Commissioner conceded $43,819 of losses to which we added $4,975.

See also Gagliardi v. Commissioner, T.C. Memo. 2008-10 (holding

that the taxpayer substantiated his slot machine losses partly on

the basis of expert witness testimony that it was highly unlikely

that the taxpayer broke even playing slot machines); Doffin v.

Commissioner, T.C. Memo. 1991-114 (taxpayer allowed $65,494 of

losses to offset $78,811 of winnings under the rule of Cohan v.

Commissioner, supra).

     We conclude that petitioner incurred gambling losses, but

she was unable to substantiate the amount of the losses to which

she is entitled.   Our duty is to make as close an approximation
                                  -8-

of the losses as we can, bearing heavily upon the taxpayer whose

inexactitude is her own making.     Doffin v. Commissioner, supra.

“But to allow nothing at all appears to us inconsistent with

saying that something was spent.”       Cohan v. Commissioner, supra

at 544.

     On the basis of petitioner’s financial situation and the

virtual certainty that she placed many losing bets during her

years of playing slot machines, we hold that petitioner is

entitled to deduct $7,944 of gambling losses in 1999, $83,828 in

2001, and $275,638 in 2002.

B.   Dependency Exemptions, Head of Household Filing Status, and
     Child Tax Credits

     Section 151(c)(1) provides that an exemption is allowed for

each dependent who is a child of the taxpayer who has not

attained the age of 19 at the end of the calendar year or is a

student who has not attained the age of 24 at the end of the

calendar year.   Section 152(a) defines dependent to include the

son or daughter of a taxpayer over half of whose support was

received from the taxpayer for the calendar year.      Under section

152(e), in the case of a child whose parents are divorced,

legally separated, or living apart and who is in the custody of

one or both parents for more than half the year, the dependency

exemption deduction generally belongs to the parent who has

custody for the greater portion of the year.
                                  -9-

     Petitioner divorced her husband in April 2000.      She credibly

testified that her children lived with her during the years at

issue except when her older son, Dustin, who had not attained the

age of 24, was away at college.    She further credibly testified

that she provided most of their support.      Dustin was in neither

parent’s custody during the years at issue because he had reached

the age of majority.5    See Boltinghouse v. Commissioner, T.C.

Memo. 2007-324.    However, petitioner provided more than half his

support and therefore is entitled to a dependency exemption

deduction for him for the years at issue under section 152(a)

without regard to section 152(e).

     Petitioner had custody of her younger son, Johnny, and

petitioner and Johnny’s father were divorced during 2001 and

2002.    Therefore, petitioner is entitled to a dependency

exemption deduction for him for 2001 and 2002 under section

152(e).    The record does not establish whether petitioner and

Johnny’s father, who were married throughout 1999, nevertheless

lived apart that year.    However, petitioner provided more than

half of Johnny’s support in 1999.       Therefore, she is entitled to

a dependency exemption deduction for him for 1999 under section

152(a) without regard to section 152(e).

     5
      Once a child reaches the age of majority under State law,
he is no longer in the custody of either parent for purposes of
sec. 152(e). Boltinghouse v. Commissioner, T.C. Memo. 2007-324.
Under California law a person reaches the age of majority when he
reaches 18 years of age. Cal. Fam. Code secs. 6500-6502 (West
2004).
                              -10-

     Under section 2(b)(1), a taxpayer is allowed to file as head

of household if the taxpayer is not married at the close of the

taxable year, is not a surviving spouse, and maintains as her

home “a household which constitutes for more than one-half of

such taxable year the principal place of abode” for certain

enumerated individuals, including a taxpayer’s child.   During

2001 and 2002 petitioner was not married and maintained as her

home a household in which at least one of her children lived for

more than half of each of those years.   Accordingly, petitioner

is entitled to head-of-household filing status for 2001 and 2002

but not 1999 because she was married at the close of that year.6

     Section 24(a) allows a tax credit with respect to each

qualifying child of a taxpayer.   For purposes of section 24, the

term “qualifying child” means a taxpayer’s child for whom the

taxpayer is entitled to a dependency exemption and who has not

attained the age of 17 as of the close of the taxable year.      Sec.


     6
      Sec. 2(c) provides that if a taxpayer is married but living
apart from her spouse, she may be treated as unmarried for head-
of-household filing purposes if the taxpayer meets the
requirements of sec. 7703(b). Sec. 7703(b) treats an individual
as not married if: (1) The taxpayer files a separate tax return;
(2) the taxpayer maintains a household that is for more than one-
half of the taxable year the principal place of abode of the
taxpayer’s child for whom the taxpayer would be entitled to claim
a dependency exemption; (3) the taxpayer pays more than half the
cost of maintaining the household for the tax year; and (4) the
taxpayer’s spouse is not a member of the household during the
last 6 months of the tax year. The record does not establish
that petitioner’s husband was not a member of her household
during the last 6 months of 1999. Therefore, petitioner does not
qualify for head of household status for 1999.
                                 -11-

24(c)(1).     The amount of the credit allowable under section 24(a)

is limited by the taxpayer’s adjusted gross income and may not

exceed a taxpayer’s regular tax liability.    Sec. 24(b), (d).

Petitioner’s 2002 income exceeds the income limitations and

precludes her from receiving a child tax credit for that year.

Petitioner’s 1999 and 2001 income do not exceed the income

limitations.    Petitioner’s older son was 19 in 1999 and 21 in

2001, and thus petitioner is not entitled to a credit for him.

She is, however, entitled to a child tax credit for 1999 and 2001

for her younger son who was only 14 in 1999 and 16 in 2001 unless

the credit exceeds her Federal income tax liability for those

years (which, subject to the parties’ computations under Rule

155, it may).

C.   Itemized Deductions

     Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving that she has complied with the

specific requirements for any deduction claimed.     INDOPCO, Inc.

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

Helvering, 292 U.S. 435, 440 (1934); see also Rule 142(a).

     Petitioner claims she is entitled to home mortgage interest

deductions.    Subject to certain exceptions not applicable here, a

taxpayer is generally allowed to deduct all interest paid with

respect to the acquisition of the taxpayer’s principal residence.

Sec. 163(a), (h)(2)(D).    Petitioner provided sufficient evidence
                                -12-

that she paid home mortgage interest of $36,927 and $45,553

during 2001 and 2002, respectively, but provided no evidence with

respect to 1999.   Accordingly, petitioner is entitled to the home

mortgage interest deduction for 2001 and 2002, but not for 1999.

     Petitioner also claims she is entitled to deductions for

real estate taxes paid during the years at issue.   Section 164

allows a deduction for certain taxes, including State and local

real property taxes, paid or accrued during the taxable year.

Petitioner provided sufficient evidence that she paid $3,056 in

real estate taxes for 2002, but provided no evidence with respect

to the other years at issue.    Accordingly, petitioner is entitled

to the deduction for real estate taxes paid for 2002, but not for

1999 and 2001.

     Petitioner claims she is entitled to other itemized

deductions including deductions for medical expenses, personal

property taxes, charitable contributions, casualty losses,

unreimbursed employee business expenses, and tax preparation

fees.7   Petitioner offered either her own vague, uncorroborated

testimony or no evidence at all to substantiate these deductions.

Accordingly, she has failed to meet her burden of proving her

entitlement to any deduction beyond the real estate tax and

mortgage interest deductions.


     7
      We find petitioner’s claim of entitlement to unreimbursed
employee expenses particularly dubious because she has not
admitted that she received any employment income.
                                   -13-

D.     Additions to Tax Under Sections 6651(a)(1) and 6654

       The Commissioner bears the initial burden of production with

respect to a taxpayer’s liability for additions to tax under

sections 6651(a)(1) and 6654(a).      Sec. 7491(c); Rule 142(a);

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).       To meet

this burden, the Commissioner must come forward with sufficient

evidence indicating it is appropriate to impose the additions to

tax.       Higbee v. Commissioner, supra at 446-447.   The taxpayer

bears the burden of proof as to any exception to the additions to

tax.       See sec. 7491(c); Rule 142(a); Higbee v. Commissioner,

supra at 446-447.

       Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed (determined with regard to

any extension of time for filing) unless the taxpayer can

establish that such failure is due to reasonable cause and not

due to willful neglect.      Petitioner did not file returns for the

years at issue.      She argues that she did not file returns because

she believed she had “negative income”.       The record establishes

that petitioner received income in excess of her deductions and

exemptions for the years at issue.8       Petitioner’s mistakes as to,

or ignorance of, the law do not constitute reasonable cause which

       8
      If after application of the exemptions, standard deduction,
gambling losses, and child tax credit petitioner has no income
tax liability for 1999, she will not be liable for an addition to
tax under sec. 6651(a)(1) because the addition to tax is
calculated as a percentage of the tax required to be shown on the
return.
                               -14-

would relieve her of liability for the additions to tax.     See

Joyce v. Commissioner, 25 T.C. 13, 15 (1955).    Accordingly, we

conclude that petitioner is liable for additions to tax under

section 6651(a)(1).

     Section 6654(a) imposes an addition to tax on an

underpayment of estimated tax unless one of the statutory

exceptions applies.   See sec. 6654(e).   The addition to tax is

calculated with reference to four required installment payments

of the taxpayer’s estimated tax liability.    Sec. 6654(c)(1);

Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), affd. 521 F.3d

1289 (10th Cir. 2008).   Each required installment of estimated

tax is equal to 25 percent of the “required annual payment.”

Sec. 6654(d)(1)(A).   The required annual payment is generally

equal to the lesser of (1) 90 percent of the tax shown on the

individual’s return for that year (or, if no return is filed, 90

percent of his or her tax for such year), or (2) if the

individual filed a return for the immediately preceding taxable

year, 100 percent of the tax shown on that return.    Sec.

6654(d)(1)(B); Wheeler v. Commissioner, supra at 210-211.     A

taxpayer has an obligation to pay estimated taxes for a

particular year only if she has a “required annual payment” for

that year.   Wheeler v. Commissioner, supra at 211.

     Petitioner filed her 1998 return, reporting tax due of

$1,871.   Petitioner did not file Federal income tax returns or
                               -15-

pay estimated taxes for 1999, 2000, 2001, and 2002.    Under

section 6654(e)(1), a taxpayer is not liable for an addition to

tax under section 6654(a) if the tax shown on the return (or if

no return is filed, the taxpayer’s tax for that year) is less

than $1,000.   After application of petitioner’s gambling losses,

exemptions, standard deduction, and child tax credit,

petitioner’s 1999 income tax liability is less than $1,000.

Therefore, she is not liable for an addition to tax under section

6654 for 1999.   Because petitioner did not file returns or pay

estimated tax for 2000 through 2002, she is liable for additions

tax under section 6654 for 2001 and 2002 calculated with respect

to the required annual payments; i.e., 90 percent of the tax due

for the respective years.

     To reflect the foregoing and the concessions of the parties,


                                      Decision will be entered

                               under Rule 155.
