Hastings V. Green Gambling Case Summary

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MEMORANDUM TO: Dr. Green FROM: DATE: September 26, 2010 RE: Tax Memo #1 / Gambling Activities Issue & Facts Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas every other weekend to gamble. He would like to know what criteria are used to determine whether his gambling activities constitute a trade or business for federal income tax purposes and whether or not his gambling activities qualify for trade or business status. Applicable Case Law, Code & Regulations The Internal Revenue Service (IRS) and the Unites States Tax Court provide guidance on whether gambling activities constitute a trade or business for federal income tax purposes. In…show more content…
• Has the taxpayer changed methods of operation to improve profitability? • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business? • Has the taxpayer made a profit in similar activities in the past? • Does the activity make a profit in some years? • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity? In deciding Donald and Denise Hastings v. Commissioner of Internal Revenue, the Tax Court ruled that “…occasional and weekend activity… does not indicate a profit objective.” and, therefore is not provided with trade or business status. Conclusion Based upon the existing precedents, Dr Green’s gambling activities would not be considered a trade or business. This opinion is supported by the fact Dr. Green is actively employed as a physician and does not “…depend on income from the [gambling] activity” as required by FS-2007-18. And as ruled in Donald and Denise Hastings v. Commissioner of Internal Revenue, since the gambling activities are limited to the weekends, they are excluded from consideration as a business activity. It is for these reasons that Dr. Green should not attempt to classify the expenses as a trade or business but instead should claim any winnings as…show more content…
Green’s gambling activities do not qualify as a trade or business, can he deduct his gambling-related travel and lodging expenses against his gambling winnings? Applicable Case Law, Code & Regulations Per Section 165(d) of the Internal Revenue Code (IRC), a taxpayer may deduct their gambling losses to the extent of their gambling winnings. However, Section 262 of the IRC indicates, “…no deduction shall be allowed for personal, living, or family expenses.” In ruling on Stanley B. and Rose M. Whitten v. Commission of Internal Revenue, the US Tax Court has stipulated that travel and lodging expenses are not considered losses and therefore cannot be used as a deduction. Conclusion Given the current tax regulations and case law, travel and lodging expenses associated to Dr. Green’s gambling activities cannot be categorized as a loss. The Tax Court clearly established in Stanley B. and Rose M. Whitten v. Commission of Internal Revenue the difference between gambling losses and travel and lodging expenses in the closing of the judgment wherein they stated there is no need, “…to eliminate the distinction between wagering losses, i.e., the amount of wagers or bets lost on wagering transactions, and expenses related thereto, e.g., expenses for transportation, meals, and lodging incurred to engage in wagering transactions… Unlike a wager or bet, petitioner incurred the expenses in question in exchange for specific goods and services, such as transportation,

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