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Mayo v. Commissioner

136 T.C. 81 (2011)

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Mayo v. Commissioner

United States Tax Court

136 T.C. 81 (2011)

Facts

Ronald Mayo (plaintiff) gambled on horse races. On his 2001 income-tax return, Mayo deducted his gambling losses to the extent of his wins and, beyond his wins, deducted business expenses including home-office costs, travel, admission fees, and ATM fees. The Commissioner of Internal Revenue (the Commissioner) (defendant) disallowed the deductions beyond the extent of Mayo’s wins, referencing § 165(d) of the Internal Revenue Code. Section 165(d), which governs the deduction of wagering losses, limited deductions to the extent of wagering gains. The United States Tax Court had previously held that for the purposes of § 165(d) wagering losses included all gambling-related business expenses, meaning that the deduction of actual losses and business expenses combined were limited to the extent of wagering gains. The tax court based its interpretation on the statute’s legislative history, which showed that the statute applied to all profit-motivated gambling, legal and illegal. Under this interpretation, Mayo would be prohibited from deducting his business expenses not related to his actual gambling losses because he had already hit his deduction limit by deducting wagering losses up to the extent of his gains. Mayo petitioned the tax court for a redetermination and challenged the tax court’s previous interpretation of the statutory language “losses from wagering transactions,” arguing that it should reflect the meaning of the language “gains from wagering transactions.” The Ninth Circuit had held that the phrase gains from wagering transactions should be given its ordinary meaning and limited its scope to cover only the gains that were a direct result of a wager made by a taxpayer; gains made in connection with a wager but not directly from a wager did not count as a wagering gain under § 165(d).

Rule of Law

Issue

Holding and Reasoning (Gale, J.)

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