Libutti v. Commissioner of Internal Revenue

T.C. Memo. 1996-108, 71 T.C.M. (CCH) 2343, T.C.M. (RIA) 96,108, 1996 RIA T.C. Memo. 96,108 (1996)

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Libutti v. Commissioner of Internal Revenue

United States Tax Court
T.C. Memo. 1996-108, 71 T.C.M. (CCH) 2343, T.C.M. (RIA) 96,108, 1996 RIA T.C. Memo. 96,108 (1996)

  • Written by Brett Stavin, JD

Facts

During the years 1987 through 1989, Robert Libutti (plaintiff) gambled extensively at the Trump Plaza Hotel and Casino (Trump). In 1987 Libutti gambled at Trump for 75 days, made an average bet of $14,964, and incurred $4,139,100 in losses. In 1988 Libutti gambled at Trump for 148 days, made an average bet of $11,526, and incurred $3,080,050 in losses. In 1989 Libutti gambled at Trump for 70 days, made an average bet of $9,226, and incurred $1,215,900 in losses. In accordance with its general practice, Trump regularly provided Libutti with complimentary goods and services, known as comps, to induce him to patronize the facility. Although for some players the amount of comps was determined according to a fixed formula, the comps for Libutti were made at the discretion of senior management. The comps generally took the form of automobiles, vacations, jewelry, champagne, and entertainment tickets. At least as to the automobile comps, Libutti typically sold the comps immediately to convert to cash, nearly all of which was gambled at Trump. In total, for the tax years 1987, 1988, and 1989, the value of the comps was $443,278, $974,992, and $1,126,856, respectively. Trump provided Libutti with a Form 1099-MISC for each tax year, and Libutti reported the comps as gross income on his returns. Trump also provided Libutti with a statement reflecting his net gambling losses for each year. Although Libutti reported the comps on his returns, he claimed matching deductions associated with his gambling losses for each year. The Internal Revenue Service (IRS) (defendant) determined that the comps could not be offset by gambling losses. Libutti petitioned the tax court for a redetermination. In defending its original decision, the IRS argued that the comps could not be offset by gambling losses because the comps could not be considered gambling winnings. Specifically, the IRS argued that the comps did not have a sufficiently strong nexus to the wagering transactions.

Rule of Law

Issue

Holding and Reasoning (Laro, J.)

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