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Zarin v. Commissioner

92 T.C. 1084 (1989)

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Zarin v. Commissioner

United States Tax Court

92 T.C. 1084 (1989)

Facts

David Zarin (plaintiff), a compulsive gambler, frequented a casino operated by Resorts International Hotel Inc. (the casino) in New Jersey. In April 1980, Zarin signed checks and markers (i.e., negotiable drafts) for $3,435,000 in gambling chips, which were ultimately returned to the casino for insufficient funds. Zarin treated the chips as a loan and did not report them as income on his 1980 tax return. The casino cut off Zarin’s access to credit shortly thereafter. In November 1980, the casino sued Zarin for recovery of the $3,435,000 in gambling debt. In September 1981, Zarin settled the lawsuit with the casino for $500,000. For the 1981 tax year, the commissioner of internal revenue (defendant) assessed $2,953,000 in additional taxable income to Zarin, arguing that Zarin had income from the discharge of indebtedness equal to the difference between $3,435,000 and the $500,000 that he paid. Zarin argued that the regular rule that canceled debt results in taxable income did not apply to his gambling debt because the debt was not enforceable under New Jersey law and he ultimately sustained a loss.

Rule of Law

Issue

Holding and Reasoning (Cohen, J.)

Dissent (Ruwe, J.)

Dissent (Jacobs, J.)

Dissent (Tannenwald, J.)

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