ROY T. OFFUTT, Petitioner,

Tax Court of the United States.

16 T.C. 1214 (Cite as: 16 T.C. 1214)

Docket No. 21436.

Promulgated May 31, 1951.

George Bouchard, Esq., for the petitioner.

A. J. Hurley, Esq., for the respondent.

Wagering losses in excess of wagering gains held not available to offset other income nor to create net operating loss carry-overs or carry-backs, notwithstanding legality and regularity of Petitioner’s wagering business. Section 23(h), Internal Revenue Code.

Petitioner seeks redetermination of deficiencies in income tax for 1946 and 1947 of $679.66 and $61, respectively, and claims overpayment of income tax for 1946 in the amount of $7,032.23. The controversy involves wagering losses which exceed wagering gains, and the issues are whether a net annual wagering loss may offset income of the same year from other sources and whether it may be taken into account in computing net operating loss carry-overs and carry-backs.


Petitioner filed his returns for 1946 and 1947 with the collector of Internal Revenue at Baltimore, Maryland.

During the years 1944 to 1947, inclusive, and for many years prior thereto, Petitioner’s principal occupation and source of income was bookmaking and betting on horse races. His activity consisted, in large part, of ‘handicapping’ horses in each race, that is, estimating their chances, and ‘making future book,’ that is, setting up a list of the horses in each race with the odds which he would be willing to accept. He printed and circulated such books among his customers, and he accepted wagers as early as two months before each race. His expenditures included mailing, printing and stenographic expenses. In addition he placed his own bets personally at race tracks. He maintained books and records of his operations. His activities revolved about horse races in California and Mexico. During the years in question, betting under the pari-mutuel system was legal in California but bookmaking was illegal in that state. During that period all of petitioner’s bookmaking was carried on in Nevada and Mexico.

In the years 1944 and 1945, petitioner sustained gambling losses in excess of gambling gains in the amounts of $325.86 and $711, respectively. Petitioner’s 1946 tax return reported salary from a race track of $5,750, interest income of $440.64, income from farm properties of $768.90, and net profit from bookmaking and betting business of $35,405.81 after the deduction of $1,036.86 for net operating loss carry-overs from 1944 and 1945. His 1947 return showed interest income of $501.18, income from farm properties of $409.93, loss from bookmaking and betting business of $12,180.10, and a total net loss for the year of$11,268.99. Subsequently petitioner filed an amended 1946 return, and a claim for refund of income tax for 1946 in the amount of $7,032.23, based upon an alleged net operating loss carry-back of $11,268.99 from 1947.

Respondent’s notice of deficiency disallowed the claimed net operating loss carry-overs and carry-back as to the year 1946, and disallowed the deduction of 1947 wagering losses against gross income of $911.11 from non-gambling sources during the same year.


OPPER, Judge:

It would be easy to extend the scope of this controversy to take in a wide range of subject matter. As presented, however, it is narrowly limited and we propose to restrict our consideration accordingly.

The single issue with which we are required to deal is in essence whether a professional gambler may deduct gambling losses exceeding gambling gains, although concededly another taxpayer not regularly engaged in gambling as a business, but undertaking gambling ventures for profit, could not do so.

We are not here confronted with the problem of whether the specific provision as to gambling losses [FN1] is exclusive, cf. Humphrey v. Commissioner (C.A. 5), 162 F.2d 853, or is merely a ‘gloss’ on the general loss deduction subdivisions so that it constitutes an additional limitation, cf. Holmes, J., dissenting in Humphrey v. Commissioner, supra, at page 855, since under either interpretation the provision would necessarily be applicable to this case. The sole question raised by petitioner is purely whether a distinction can validly be drawn as to the deductibility of gambling losses in excess of gambling gains between a taxpayer who makes gambling his regular business and one who undertakes it for profit, but only sporadically. We find no basis in the statute nor, for that matter, in the legislative history for thus restricting the plain language of section 23(h), nor for distinguishing its relationship between section 23(e)(1) relating to business losses, on the one hand and section 23(e)(2) covering losses in transactions entered into for profit, on the other.

Indeed, after the submission of this proceeding the Court of Claims decided Skeeles v. United States, 95 F. Supp. 242. In that case, as in this one, the question of deductibility by a professional gambler of wagering losses as a carry-over and carry-back was involved. It was held that neither was permissible under section 23(h). The parties expressly agree that the purpose and effect of that provision is to require consonant treatment for legal and illegal transactions, [FN2] and since the only difference between Skeeles’ situation and this one is that the present petitioner may at all times have been lawfully engaged, we could not decide in favor of petitioner without rejecting that case. It seems to us, however, to be correct. For similar reasons petitioner’s gambling losses cannot offset non-gambling income. Robert L. Carnahan, 9 T.C. 1206, affd. (C.A. 10), 176 F.2d 394. We accordingly find no error in the deficiency determination.

Reviewed by the Court.

Decision will be entered for the respondent.

[FN1.] Section 23(h) as added by the 1934 Act: (h) WAGERING LOSSES.- Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.

[FN2.] Petitioner’s brief: It seems obvious that the only change made in the law with respect to gambling losses was to remove the difference in the treatment for tax purposes between legal losses and illegal losses. * * * Respondent’s brief: * * * the purpose and intent of Congress in enacting Sec. 23(h) was to provide a restrictive treatment of wagering losses as a class which would eliminate the theretofore existing distinction between legal and illegal wagering. * * *