Opinion
34622-21S
07-03-2023
KAREN BERLANT & WAYNE RHINE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Lewis R. Carluzzo, Chief Special Trial Judge
This case for the redetermination of a deficiency is before the Court on (1) petitioners' Motion for Summary Judgment, filed September 23, 2022, and (2) petitioners' Motion to Strike, filed February 21, 2023. Respondent's objections to petitioners' motions are embodied in responses filed February 17, 2023, and April 25, 2023, respectively. Petitioners' motions were heard in Chicago, Illinois, on June 21, 2023. Counsel for the parties appeared and were heard.
According to the notice of deficiency (notice) that forms the basis for this case, petitioners failed to report certain gambling income shown on various information returns submitted to respondent by various casinos. Petitioners do not dispute receipt of the gambling income shown on the information returns and in the notice. According to petitioners, this gambling income is not includable in their income because the gambling income was fully offset by gambling losses. See § 165(d).Respondent insists that the gambling income must be included in petitioners' income, but apparently agrees, at least in principle, that petitioners would be entitled to deduct gambling losses as allowable under section 165(d), but only if the losses were substantiated, and only if petitioners elected to compute their taxable income with reference to itemized deductions, which they did not do.
Statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and Rule references are to the Tax Court Rules of Practice and Procedure.
As of the date of the hearing the parties had not yet focused on the amount of gambling losses that petitioners might have suffered. In respondent's response to petitioners' summary judgment motion respondent argues that the information petitioners rely upon to support the amount of claimed gambling losses-their 2018 return, coupled with three attached casino markers-is insufficient to prove that petitioners actually incurred gambling losses in the amount they claim. The dispute between the parties over the amount of petitioners' gambling losses is a dispute over a question of material fact that requires denial of petitioners' motion.
During the hearing, recognizing that the factual dispute was fatal to their summary judgment motion, petitioners requested that the motion be treated as a motion for partial summary judgment. According to petitioners, by so doing the Court could rule on the issue of whether section 165(d) gambling losses may be deductible even though petitioners computed their taxable income and income tax liability with reference to the standard deduction. We note that the weight of authority supports respondent's position on the point. Nevertheless, under the circumstances and at this stage of the proceedings, we consider it inappropriate to resolve any of the disputes between the parties as to how gambling losses must be deducted.
Petitioners' Motion to Strike points out that gambling losses are not referenced in the notice. That being so, according to petitioners, respondent is precluded from raising a dispute over the amount of those losses in support of his objection to petitioners' summary judgment motion. According to petitioners, the portion of respondent's response that does so should be stricken as an "insufficient claim or defense." See Rule 52. As petitioners view the matter, the deficiency determined in the notice does not result from the denial of gambling loss deductions, so the dispute over the amount of the losses is not properly before the Court.
Petitioners' argument fails to recognize the circumstances that prompted the focus on deductions allowable under section 165(d). The notice, as noted, addresses omitted gambling income, not disallowed gambling loss deductions. At this stage of the proceedings, petitioners' entitlement to a deduction for gambling losses is only under consideration because of the position taken in petitioners' summary judgment motion. After all, even under petitioners' theory of the case, they would have to substantiate any otherwise allowable deduction for gambling losses. Because the summary judgment motion was made by petitioners rather than by respondent, the amount of any otherwise allowable deduction for gambling losses, at least at this stage of the proceedings, is material to the resolution of this case. That being so, the dispute over the amount of petitioners' gambling losses as raised by respondent cannot be considered as an "insufficient claim or defense" within the meaning of Rule 52.
To reflect the foregoing, and for reasons set forth in the transcript of the above-referenced proceedings, it is
ORDERED that petitioners' Motion for Summary Judgment and petitioners' Motion to Strike are denied.