DocketNumber: Docket Nos. 1327-73 1360-73.
Citation Numbers: 34 T.C.M. 996, 1975 Tax Ct. Memo LEXIS 144, 1975 T.C. Memo. 228
Filed Date: 7/14/1975
Status: Non-Precedential
Modified Date: 11/21/2020
SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION
GOFFE,
We shall repeat only those facts necessary to our decision herein.
FINDINGS OF FACT
The practice of engaging shills in card room businesses similar to the club operated by petitioners' partnership was common and customary and the practice of such businesses in turning money (or money's worth in chips) over to shills to play Lo-Ball, Pan and similar games, with*146 the understanding that any net winnings of the shill on each occasion would be split equally between the club and the shill and any loss would be absorbed entirely by the club, was common and customary.
OPINION
Respondent seeks to characterize the net shill loss payments as wagering losses subject to the limitations of section 165(d). 2 Assuming such payments are wagering losses, the question then arises whether section 165(d) is the sole statutory provision under which wagering losses may be deducted notwithstanding that such losses otherwise qualify as ordinary and necessary business expenses within the purview of section 162(a).
Petitioners contend that the limitation of section 165(d) allowing the deduction of wagering losses only to the extent of wagering gains is not controlling because the club did not engage in wagering. Further, if the $14,358 net payments to shills is characterized as a wagering loss, petitioners argue that the seat rental charges from the shills should be recharacterized as wagering gains rendering*147 the losses fully deductible.
As we stated in our prior opinion, respondent's characterization of the net payments to the shills as wagering losses is based upon the contention that "the Club, through its arrangement with the shills, was an active participant in the gaming activity." Such a position is bottomed on the assumption that the club and the shills were, for Federal income tax purposes, dealing in concert. We perceive two possible theories to sustain such a view. On the one hand, if we disregard the form of the transaction and ignore the shills as independent taxable entities such a position could be maintained. However, we find nothing in the record to warrant such a conclusion.
We also reject the possibility of numerous separate joint ventures between the club and each shill with the partnership consequences which would follow.
The agreement of the parties and their conduct in executing its terms; the contributions, if any, which each party has made to the venture; the*149 parties' control over income and capital and the right of each to make withdrawals; whether each party was a principal and coproprietor, sharing a mutual proprietary interest in the net profits and having an obligation to share losses,
The emphasized language sets forth our view of the relationship between the shills and the club. 3 Beyond the sharing of profits, we find little suggesting a joint venture. Moreover, although the shills endeavored to secure a profit from their gaming activities, we do not believe that the combination of the club and the shills was accompanied by a joint intent to secure a profit from*150 the specific venture.
*151 We find that the net payments to the shills were not wagering losses but were ordinary and necessary business expenses deductible under section 162(a). We, therefore, need not consider either respondent's or petitioners' alternative contentions which are premised upon such payments being wagering losses. Due to other concessions,
1. All Code references are to the Internal Revenue Code of 1954 unless otherwise noted.↩
2. SEC. 165. LOSSES.
(d) WAGERING LOSSES.--Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.↩
3. See also
Tompkins v. Commissioner of Internal Revenue , 97 F.2d 396 ( 1938 )
Jennings v. Commissioner of Internal Revenue , 110 F.2d 945 ( 1940 )
charles-h-palda-v-commissioner-of-internal-revenue-s-r-okes-v , 253 F.2d 302 ( 1958 )
Commissioner of Internal Revenue v. Jacob (Jay) Paley and ... , 232 F.2d 915 ( 1956 )