The Tax Court had to decide whether or not another individual was a professional gambler. On his return, he included his gambling winnings on a Schedule C (like a professional gambler). But was he truly a professional or was he an amateur?
Among the items I stress to my clients, first and foremost is keeping good records. (This is true for amateur gamblers, too, of course.) Did the petitioner keep good records? Well, did he keep any records? I think you know where this is going.
There’s a nine-factor test used by the Tax Court (and other courts) in determining whether an individual is a professional or an amateur in any profession. The nine factors are:
- Manner in which the taxpayer carries out the activity.
- The expertise of the taxpayer or his advisors.
- The time or effort expended by the taxpayer in carrying out the activity.
- Expectation that assets used in the activity may appreciate in value.
- The success of the taxpayer in carrying out other similar or dissimilar activities.
- The taxpayer’s history of income or losses with respect to the activity.
- The amount of occasional profits, if any, earned.
- The financial status of the taxpayer.
- Elements of personal pleasure or recreation.
Today’s petitioner didn’t lose on all the factors; one was held not to apply. That said, first impressions are meaningful in these ‘hobby loss’ cases. The petitioner presented no records at the trial. There were some records from the casinos, but they were deemed unreliable by the Court. Finally, the petitioner gambled at slot machines, and it’s highly unlikely that any court will find someone who gambles on slots is ever a professional as it’s next to impossible for a player to win against slot machines in the long-run.
The petitioner was ruled to be an amateur gambler. Taxdood has more.