Sjoberg v. Comm'r

T.C. Summary Opinion 2008-162
UNITED STATES TAX COURT
ALAN A. AND MARY E. SJOBERG, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12245-07S. Filed December 23, 2008.
Alan A. and Mary E. Sjoberg, pro sese.
Michael A. Pesavento, 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.
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Respondent determined a $660 deficiency in petitioners’
Federal income tax for 2004 and a $132 accuracy-related penalty
under section 6662(a). The primary issue for decision is whether
on their 2004 Federal income tax return petitioners may treat
gambling winnings and expenses as business income and expenses or
whether the gambling winnings must be treated as “Other” income
and the expenses as miscellaneous itemized deductions. The
resolution of this issue affects only the taxable amount of
petitioners’ Social Security benefits.
Unless otherwise indicated, all 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.
In 2004 petitioners were recreational gamblers.
In 2004 petitioners received $19,995 in wage income, $1,439
in business income, $10,000 as an individual retirement account
(IRA) distribution, and $20,154 in Social Security benefits.
Also in 2004, petitioner Mary E. Sjoberg won a $4,000 slot
machine jackpot, which was fully offset by her gambling expenses.
The casino submitted to petitioners and respondent a Form W-2G,
Certain Gambling Winnings, reporting the $4,000 jackpot.
On their 2004 joint Federal income tax return, petitioners
did not include the $4,000 jackpot in income and they did not
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claim their offsetting gambling expenses. Rather, petitioners
simply attached a handwritten note to their return disclosing the
$4,000 jackpot. Petitioners also treated only $4,704 of their
Social Security benefits as includable in income.
On audit respondent determined that petitioners must include
the $4,000 jackpot in gross income, offset by a $4,000 gambling
loss deduction but triggering a mechanical $2,494 increase in
petitioners’ taxable Social Security benefits and a $130 decrease
in allowable miscellaneous itemized deductions. Respondent also
determined a $132 accuracy-related penalty under section 6662(a).
Discussion
Petitioners do not dispute that under the provisions of the
Internal Revenue Code respondent’s adjustment with respect to the
Federal income tax treatment of their $4,000 gambling winnings
and offsetting expenses is correct, including the effect thereof
on the taxability of petitioners’ Social Security benefits.
Petitioners, however, contend that this treatment of gambling
winnings and losses is discriminatory against the elderly and
should not be enforced. Petitioners note that today’s casinos
are like “Disneyland” to the elderly, offering all sorts of
freebies to entice the elderly into casinos to gamble.
Petitioners contend that respondent needs to update the tax rules
to take into account today’s casino operators, casino operations,
and customers.
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Petitioners complain that it is just “too easy” for the
elderly to gamble and therefore that the tax rules applicable
thereto are outdated and should not be enforced--particularly
those rules that affect the taxability of Social Security
benefits. Lastly, petitioners allege that some types of gambling
winnings are not required to be reported to respondent by the
casinos (generally poker and blackjack), and petitioners claim
that such differences in the reporting of gambling winnings
constitute discrimination.
Petitioners’ arguments raise policy issues that do not
relieve petitioners of their liability for the determined
deficiency.
We sustain respondent’s determination of the $660 deficiency
in petitioners’ Federal income tax and the $132 accuracy-related
penalty under section 6662(a).
Decision will be entered
for respondent.