                               T.C. Memo. 2017-154



                         UNITED STATES TAX COURT



          WILLIAM BON VISO AND CLARE BON VISO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2502-16.                          Filed August 8, 2017.



      William Bon Viso and Clare Bon Viso, pro sese.

      Linette B. Angelastro, Jordan S. Musen, and Christopher J. Richmond, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


      VASQUEZ, Judge: With respect to petitioners’ Federal income tax for

2013, respondent determined a deficiency of $2,430. After concessions,1 the


      1
          Respondent determined that petitioners had unreported discharge of
                                                                     (continued...)
                                        -2-

[*2] issues for decision are whether petitioners: (1) must include gambling

winnings of $5,060 in their gross income and (2) may use their gambling losses to

offset their gambling winnings.2

                                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.

Petitioners resided in Agoura Hills, California, when they filed their petition.

      During 2013 petitioner husband engaged in a variety of recreational

gambling activities: he bet on college and professional sports, played slot

machines, and bought lottery tickets. That year petitioner husband won $5,060 on

slot machines at three different casinos. That same year petitioners also sustained

$6,983.25 in gambling losses.

      On their joint Form 1040, U.S. Individual Income Tax Return, petitioners

did not report any gambling winnings or losses for the 2013 taxable year and

claimed a standard deduction of $12,200. Respondent received three Forms


      1
        (...continued)
indebtedness income. Respondent conceded this issue before trial on account of
petitioners’ insolvency.
      2
         All section references are to the Internal Revenue Code (Code) in effect
for the year in issue, and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                         -3-

[*3] W-2G, Certain Gambling Winnings, reporting petitioner husband’s receipt of

gambling winnings as follows:


       Gambling
                           Type of wager         Amount                     Date
     establishment

 Gaughan South LLC         Slot machines          $1,448                   2/2/13
  d.b.a. South Point
  Hotel & Casino
 LVHR Casino LLC           Slot machines           1,600                  2/22/13

 Palms Casino Resort        Slot machines          2,012                  3/22/13


On the basis of this information respondent issued a notice of deficiency in which

he determined that petitioners had unreported gambling income of $5,060 for

2013. Petitioners timely petitioned this Court, and a trial was held on March 17,

2017.

                                     OPINION

1.      Burden of Proof

        As a general rule, the Commissioner’s determination of a taxpayer’s liability

in a notice of deficiency is presumed correct, and the taxpayer bears the burden of
                                        -4-

[*4] proving that the determination is incorrect.3 Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).

      When a case that involves unreported income is appealable to the Court of

Appeals for the Ninth Circuit, as this case appears to be absent a stipulation to the

contrary, see sec. 7482(b)(1)(A), (2), the Commissioner’s determination of

unreported income is entitled to a presumption of correctness only if the

Commissioner first establishes “some evidentiary foundation” connecting the

taxpayer with the income-producing activity, see Weimerskirch v. Commissioner,

596 F.2d 358, 361-362 (9th Cir. 1979), rev’g 67 T.C. 672 (1977), or demonstrating

that the taxpayer actually received unreported income, see Edwards v.

Commissioner, 680 F.2d 1268, 1270-1271 (9th Cir. 1982). If the Commissioner

introduces some evidence that the taxpayer received unreported income, the

burden of production shifts to the taxpayer, who must establish by a

preponderance of the evidence that the deficiency was arbitrary or erroneous. See




      3
         Sec. 7491(a) shifts the burden of proof to the Commissioner as to any
factual issue relevant to a taxpayer’s liability for tax if the taxpayer meets certain
preliminary conditions. See Higbee v. Commissioner, 116 T.C. 438, 442-443
(2001). Petitioners do not contend that sec. 7491(a) should shift the burden here,
and the record establishes that they have not satisfied that section’s requirements.
Consequently, petitioners bear the burden of proof as to any disputed factual issue.
See Rule 142(a).
                                          -5-

[*5] Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff’g T.C.

Memo. 1997-97.

        Petitioners stipulated that during 2013 petitioner husband received

gambling winnings of $5,060. Since petitioners acknowledged the receipt of

gambling winnings, we find that respondent has connected them with the

income-producing activity. Consequently, petitioners bear the burden of proving

that respondent’s determinations are arbitrary or erroneous. See id.

2.      Gambling Income

        a.    Unreported Gambling Winnings

        The first issue for decision is whether petitioners must include petitioner

husband’s gambling winnings in their gross income for 2013. We hold that they

must.

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

source derived. Gambling winnings are includable in gross income. McClanahan

v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961). Drawing an analogy

between gambling winnings and the recovery of a capital investment, this Court

has held that a casual gambler’s gross income from a wagering transaction should

be calculated by subtracting the bets placed to produce the winnings. See Lutz v.

Commissioner, T.C. Memo. 2002-89 (slot machine winnings); Hochman v.
                                        -6-

[*6] Commissioner, T.C. Memo. 1986-24 (horse race winnings). A taxpayer who

plays the slot machines recognizes a wagering gain or loss per session (i.e., at the

time the taxpayer redeems his or her tokens). See Shollenberger v. Commissioner,

T.C. Memo. 2009-306. It is a taxpayer’s obligation to keep records of his or her

income. Sec. 6001.

      Petitioners have not challenged the accuracy of the gross winnings amounts

reflected on the Forms W-2G.4 Rather, petitioners argue that those amounts

should be reduced by the amounts of bets they placed to produce their winnings.

      Although petitioners introduced evidence of losses at another casino (in

addition to lottery tickets and sporting bets), the record contains no evidence

specifying how much petitioner husband bet to produce the winnings reflected on

the Forms W-2G. In certain situations we may estimate the amount of a reduction

in income even if the taxpayer fails to keep records, but only if the taxpayer

presents sufficient evidence to establish a rational basis for making the estimate.

See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.


      4
         Sec. 6201(d) provides that if a taxpayer asserts a reasonable dispute with
respect to any item of income reported on an information return by a third party,
the Secretary has the burden of producing reasonable and probative information
concerning the deficiency in addition to the information return. Because
petitioners have not asserted that the Forms W-2G are inaccurate, this provision
does not apply.
                                        -7-

[*7] Commissioner, 85 T.C. 731, 742-743 (1985). Since we have no basis for

estimating the amounts of petitioner husband’s bets, we hold that petitioners must

include gambling winnings of $5,060 in their gross income.

      b.     Gambling Losses

      The second issue for decision is whether petitioners may use their gambling

losses to offset petitioner husband’s gambling winnings.

      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. See sec. 62(a)(1); Merkin v. Commissioner, T.C. Memo.

2008-146. In the case of taxpayers not engaged in the trade or business of

gambling, gambling losses are allowable as an itemized deduction, but only to the

extent of gambling winnings.5 See sec. 165(d). If such taxpayers take the

standard deduction instead of itemizing their deductions, they may not deduct any

gambling losses. See Torpie v. Commissioner, T.C. Memo. 2000-168.




      5
         In the case of a husband and wife making a joint return for the taxable
year, the combined losses of the spouses from wagering transactions shall be
allowed to the extent of the combined gains of the spouses from wagering
transactions. Sec. 1.165-10, Income Tax Regs.
                                        -8-

[*8] Petitioners do not claim to be in the trade or business of gambling, and

nothing in the record suggests otherwise. Petitioner husband testified, and we

have so found, that petitioners’ gambling losses exceeded their gambling winnings

for 2013. However, because petitioners were not engaged in the trade or business

of gambling, petitioners would have to forgo the standard deduction to deduct

their gambling losses as an itemized deduction. See sec. 63(a) and (b); Torpie v.

Commissioner, T.C. Memo. 2000-168. Petitioners’ standard deduction, $12,200,

exceeds their potential itemized deduction for gambling losses, $5,060. Thus,

petitioners’ election to take the standard deduction resulted in a larger deduction

than if they had taken an itemized deduction for their gambling losses.6 Because

petitioners elected to take the standard deduction, we hold that they cannot take an

itemized deduction for their gambling losses to offset their gambling winnings.7

See sec. 63(a) and (b); Torpie v. Commissioner, T.C. Memo. 2000-168.




      6
        Petitioners presented no evidence that they were entitled to other itemized
deductions beyond that for their gambling losses.
      7
        A taxpayer may change an election to claim the standard deduction at any
time before the period of limitations has expired. Sec. 63(e); Shollenberger v.
Commissioner, T.C. Memo. 2009-306, slip op. at 5 n.3. Insofar as the record
shows, petitioners have not sought to change their election to claim the standard
deduction. In any event, on the record before us it would not appear advantageous
for them to do so.
                                       -9-

[*9] In reaching our holding, we have considered all arguments made, and to the

extent not mentioned, we consider them irrelevant, moot, or without merit.8

      To reflect the foregoing,


                                                   Decision will be entered under

                                             Rule 155.




      8
         Petitioners contend that they are entitled to gambling loss deductions for
2013 because respondent allowed similar deductions for 2009 and 2012 even
though petitioners did not itemize their gambling losses. However, each tax year
stands on its own and must be separately considered. See United States v. Skelly
Oil Co., 394 U.S. 678, 684 (1969). Respondent is not bound for any given year to
allow the same treatment permitted for a previous year. See, e.g., Lerch v.
Commissioner, 877 F.2d 624, 627 n.6 (7th Cir. 1989), aff’g T.C. Memo.
1987-295; Pekar v. Commissioner, 113 T.C. 158, 166 (1999).
