Tax Memorandum
MEMORANDUM
TO: Dr. Green
FROM: Kecia Carter
DATE: November 28, 2010
RE: Tax Memo #1/Gambling Activities
Issue #1
Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas bi-weekly 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 you think his gambling activities qualify for trade or business status.
Law
The Internal Revenue Service (IRS) reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby. The term “trade or business” is not defined in the Internal Revenue Code or the regulations. With that being said, it is well established that in order for an activity to be considered a trade or business for the purposes of section 162, the activity must be conducted with “continuity and regularity” and “the taxpayer’s primary purpose for engaging in the activity must be for income or profit.” Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). Taxpayers bear the burden of proving that they engaged in the activity with an actual and honest objective of realizing a profit. Hendricks v. Comr., 32 F.3d 94 (4th Cir. 1994), aff’g T.C. Memo 1993-396, Comr. v. Groetzinger, 480 U.S. 23, 35 (1987); Bot v. Comr., 353 F.3d 595, 599 (8th Cir. 2003), aff’g 118 T.C. 138 (2002); Am. Acad. Of Family Physicians v. U.S., 91 F.3d 1155, 1157-58 (8th Cir. 1996). Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Hulter v. Commissioner, 91 T.C. 371, 392 (1988); Dreicer v. Commissioner, 78 T.C. 642, 644-645 (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs.
Although a reasonable expectation of a profit is not required, the taxpayer’s profit objective must be actual and honest. Dreicer v.
TO: Dr. Green
FROM: Kecia Carter
DATE: November 28, 2010
RE: Tax Memo #1/Gambling Activities
Issue #1
Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas bi-weekly 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 you think his gambling activities qualify for trade or business status.
Law
The Internal Revenue Service (IRS) reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby. The term “trade or business” is not defined in the Internal Revenue Code or the regulations. With that being said, it is well established that in order for an activity to be considered a trade or business for the purposes of section 162, the activity must be conducted with “continuity and regularity” and “the taxpayer’s primary purpose for engaging in the activity must be for income or profit.” Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). Taxpayers bear the burden of proving that they engaged in the activity with an actual and honest objective of realizing a profit. Hendricks v. Comr., 32 F.3d 94 (4th Cir. 1994), aff’g T.C. Memo 1993-396, Comr. v. Groetzinger, 480 U.S. 23, 35 (1987); Bot v. Comr., 353 F.3d 595, 599 (8th Cir. 2003), aff’g 118 T.C. 138 (2002); Am. Acad. Of Family Physicians v. U.S., 91 F.3d 1155, 1157-58 (8th Cir. 1996). Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Hulter v. Commissioner, 91 T.C. 371, 392 (1988); Dreicer v. Commissioner, 78 T.C. 642, 644-645 (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs.
Although a reasonable expectation of a profit is not required, the taxpayer’s profit objective must be actual and honest. Dreicer v.