                  T.C. Summary Opinion 2008-161



                      UNITED STATES TAX COURT



            KEITH AND DINAH M. FREESE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 29452-07S.             Filed December 23, 2008.



     Keith and Dinah M. Freese, pro sese.

     Lisa R. Woods, for respondent.



     SWIFT, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.   Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and

this opinion shall not be treated as precedent for any other

case.
                                 -2-

     Respondent determined a $3,364 deficiency in petitioners’

Federal income tax for 2005.   The issue for decision is whether

petitioners’ 2005 gambling activity qualifies as a trade or

business.

     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue.


                             Background

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

Petitioners resided in Minnesota.

     Over the years including 2005, petitioners have been

employed full time as employees--petitioner Dinah Freese in a

paper manufacturing plant and petitioner Keith Freese as a

cabinetmaker.    Petitioner Keith Freese was also self-employed as

a cabinetmaker, conducting that activity out of his home and

garage.

     In 1998 because of health problems that prevented

petitioners from participating in outdoor recreational

activities, petitioners began gambling together at a casino on an

Indian reservation.

     Petitioners gambled one or two evenings a week and only on

slot machines.   Petitioners gambled with cash that they either

brought with them from home or obtained at the casino by writing

personal checks or by withdrawing cash from an ATM.
                                  -3-

     Petitioners did not keep a log of the cash gambled or the

time spent gambling.   Petitioners did not maintain a separate

bank account, did not maintain books and records, and did not

otherwise keep track of their gambling income and expenses.

Petitioners did not maintain any meaningful records relating to

their gambling activity.

     Each time each petitioner won a slot machine jackpot of

$1,200 or more, petitioners received from the casino a record

thereof on Form W-2G, Certain Gambling Winnings, and petitioners

did keep copies of these forms.

     Petitioners occasionally used player cards given to them by

the casino which, if inserted into slot machines, enabled   the

casino to keep track of petitioners’ gambling activity.

Petitioners however did not consistently use the player cards

when they gambled because petitioners believed that using player

cards enabled the casino to skew against them the winning odds on

the slot machines.

     Casino printouts in evidence showing petitioners’ gambling

activity for 2005 are incomplete and do not accurately reflect

all of petitioners’ gambling activity.   As indicated, petitioners

kept no record of the amount of cash they put into slot machines,
                               -4-

and there are no records available of petitioners’ slot machine

winnings in amounts less that $1,200 for which petitioners did

not use player cards.

     Petitioners state that their gambling activity every year is

pretty much “a wash.”

     On their Federal income tax returns for 1998 through 2004

petitioners did not treat themselves as professional gamblers,

and they did not report their gambling income and expenses as a

trade or business on a Schedule C, Profit or Loss From Business.

Rather, petitioners reported income relating to their gambling

activity as “Other” income on the first page of their Federal

income tax returns, and they reported gambling expenses on

Schedule A, Itemized Deductions.

     To prepare their 2005 Federal and State income tax returns,

however, petitioners hired Jerome Marshik (Jerome), a tax return

preparer and certified public accountant who practices in

Minnesota.

     In connection with the preparation of petitioners’ 2005

Federal income tax return, Jerome did not ask for and petitioners

did not provide Jerome any casino records or other underlying

records relating to their 2005 gambling activity.   Jerome asked

for and petitioners provided him only an estimated total dollar

amount for their 2005 slot machine jackpots of $1,200 or more, as

reflected on the Forms W-2G which petitioners received from the
                                -5-

casino.   Jerome did not ask for and petitioners did not provide

him any amount for slot machine gambling income not involving

jackpots of $1,200 or more.

     With regard to gambling expenses, Jerome asked for and

petitioners gave him only an estimated total dollar amount for

their 2005 gambling expenses.   Petitioners calculated that amount

by adding up the checks they wrote to the casino in 2005 for cash

and their 2005 ATM cash withdrawals.    The total expense amount

petitioners gave to Jerome did not include cash that petitioners

brought with them from home and played at the slot machines.

     Jerome advised petitioners that to avoid the cap on the

deduction of gambling expenses that would apply if gambling

expenses were reported on a Schedule A, petitioners could report

their gambling activity as that of a trade or business.1

     Petitioners’ 2005 Federal income tax return, as filed with

respondent, reported petitioners’ gambling activity on two

Schedules C, one for each petitioner.

     On her Schedule C for 2005, Dinah Freese reported gambling

income of $175,100, gambling expenses of $174,240, and a net

income of $860.




     1
        Jerome Marshik also erroneously advised petitioners that
he should not attend the trial herein because he would not be
allowed to testify. Relying on that erroneous advice,
petitioners did not ask Jerome to attend the trial and to be a
witness.
                                  -6-

     On his Schedule C, Keith Freese reported gambling income of

$143,868, gambling expenses of $148,068, and a net loss of

$4,200.

     During respondent’s audit, petitioners requested and

obtained from the casino a list of slot machine jackpots

petitioners won during 2005, and petitioners provided that list

to respondent.

     On audit respondent determined that each petitioner’s

gambling activity did not rise to the level of a trade or

business, and respondent moved petitioners’ gambling income from

the Schedules C to Other Income and petitioners’ gambling

expenses to a Schedule A, and respondent disallowed any gambling

expenses greater than petitioners’ gambling income.


                             Discussion

     Petitioners’ gambling activity in 2005 clearly did not

qualify as a trade or business.    Petitioners did not gamble with

continuity and regularity.   Petitioners regarded their gambling

activity as recreation they shared, and petitioners did not

expect to earn a profit from gambling.      Petitioners did not

maintain books and records relating to their gambling activity.

They did not conduct their gambling activity in a businesslike

manner.   See Commissioner v. Groetzinger, 480 U.S. 23 (1987);

sec. 1.183-2(b), Income Tax Regs.       Petitioners’ gambling activity

did not rise to the level of a trade or business, and petitioners
                                -7-

are not allowed to deduct gambling expenses in excess of gambling

income.

     We sustain respondent’s adjustments to petitioners’ 2005

gambling income and expenses.


                                      Decision will be entered

                                for respondent.
