                   T.C. Summary Opinion 2005-139



                      UNITED STATES TAX COURT



         TRACI A. TOMKO AND RONALD R. TOMKO, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6108-04S.           Filed September 27, 2005.



     Traci A. Tomko and Ronald R. Tomko, pro se.

     James E. Schacht and Mark J. Miller, for respondent.


     POWELL, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.1     The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.


     1
          Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year in issue, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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     Respondent determined a deficiency of $13,170 in

petitioners’ 2001 Federal income tax.     The issue is whether

petitioners are entitled to deduct certain gambling losses.

Petitioners resided in Oneida, Wisconsin, when the petition in

this case was filed.

                             Background

     The facts may be summarized as follows.     During 2001,

petitioners were recreational gamblers who played slot machines.

Petitioners had winnings of at least $44,464 from these

activities that were reported to the Internal Revenue Service.

See sec. 7.6041-1, Temporary Proced. & Admin. Regs., 42 Fed. Reg.

1471 (Jan. 7, 1977).   On their joint 2001 Form 1040, U.S.

Individual Income Tax Return, petitioners reported gambling

income of $21,100 and gambling losses of the same amount on

Schedule A, Itemized Deductions.   Respondent determined that

petitioners received gambling income of $44,464 and disallowed

the deduction for gambling losses on the ground that petitioners

failed to substantiate any losses.

     Petitioners do not dispute the increase in gambling income.

Petitioners, however, argue that they have substantiated their

losses.   They claim that the funds for each trip to the local

casinos is shown by cash withdrawals on credit cards or bank

account debit cards.   Their statements from these accounts show

activities at the casinos.   In addition, they reconstructed their
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gambling activities allegedly showing cash withdrawals for each

day and the amount of individual gain or loss at the end of the

day.    For example, the credit card account statement shows that

on June 14, 2001, they withdrew $600, and the gambling activity

records for that day show that they lost $600.

                             Discussion

       Section 61(a) defines gross income to mean all income from

whatever source derived.    Winnings from slot machines and other

gambling winnings are includable in gross income.      See Lyszkowski

v. Commissioner, T.C. Memo. 1995-235, affd. without published

opinion 79 F.3d 1138 (3d Cir. 1996).      In the case of an

individual, section 62(a) defines adjusted gross income as gross

income less certain deductions, including deductions attributable

to a trade or business carried on by the taxpayer.      Sec.

62(a)(1).    If a taxpayer’s gambling activity constituted a trade

or business, his or her gambling losses would be deductible from

gross income in arriving at adjusted gross income on Schedule C,

Profit or Loss From Business.    If a taxpayer’s gambling activity

did not constitute a trade or business, his or her gambling

losses would be deductible as an itemized deduction in arriving

at taxable income on Schedule A.    Sec. 63(a).    Petitioners do not

claim that they were in the trade or business of gambling.

       Regardless whether or not the activity constituted a trade

or business, section 165(d) provides that “Losses from wagering
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transactions shall be allowed only to the extent of the gains

from such transactions.”   See also sec. 1.165-10, Income Tax

Regs.   Petitioners do not dispute that section 165(d) applies

here.

     Respondent claims that petitioners’ records are insufficient

to establish that they incurred any losses.   To be sure,

petitioners’ records leave something to be desired.   Section 6001

and the regulations thereunder require that taxpayers keep

adequate records to substantiate their income and deductions.

When a taxpayer fails to keep adequate records, but a court is

convinced that deductible expenses were made, the Court “should

make as close an approximation as it can, bearing heavily if it

chooses upon the taxpayer whose inexactitude is of his own

making.”   Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).

In cases involving gambling losses, this Court has invoked the

Cohan rule when it is satisfied that a taxpayer has incurred some

gambling losses.   See Drews v. Commissioner, 25 T.C. 1354 (1956).

     The total amount petitioners attribute to their gambling

activity is $46,542--$18,080 (Chase credit card), $19,800 (MBNA

credit card), and $8,662 (bank account debit card).   While this

amount may have cycled through the casinos and the financial

institution, we are not convinced that this amount represents

petitioners’ gambling losses.   According to their testimony,

their losses were computed by the amount of cash they had at the
                               - 5 -

end of their sessions of playing the slot machines, and they

claim they did not not leave a casino with any of the cash they

had originally withdrawn except when they hit a payout of more

than $1,200.   We are particularly bothered by this explanation.

Although the odds are in a casino’s favor, it does not

necessarily follow that there are no days when a player comes out

ahead.   Given the uncertainty of petitioners’ records, and the

certainty that there must have been some losses, we find that

petitioners did suffer total gambling losses of $40,000 in 2001.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                               under Rule 155.
