Bickers v. Commissioner

1960 T.C. Memo. 83, 19 T.C.M. 440, 1960 Tax Ct. Memo LEXIS 207

• Court: United States Tax Court
• Decided: April 29, 1960
• Docket: Docket Nos. 72575, 73385.
• Status: Unpublished

Opinion

B. H. Bickers and Lucille M. Bickers v. Commissioner. B. H. Bickers v. Commissioner.

Bickers v. Commissioner

Docket Nos. 72575, 73385.

United States Tax Court

T.C. Memo 1960-83; 1960 Tax Ct. Memo LEXIS 207; 19 T.C.M. (CCH) 440; T.C.M. (RIA) 60083;

April 29, 1960

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Held, petitioners have failed to prove by a preponderance of evidence that they suffered deductible gambling losses in excess of $21,682 for 1953 and $46,219 for 1954. These amounts should be allowed as offsets to the amounts of admitted wagering gains of petitioner B. H. Bickers in the respective taxable years. Held, further, additions to taxes for negligence or intentional disregard of rules and regulations sustained.

Henry Klepak, Esq., Texas Bank Building, Dallas, Tex., for the petitioners. David E. Mills, Esq., for the respondent.

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BLACK

Memorandum Findings of Fact and Opinion

Respondent has determined deficiencies and additions to taxes of the petitioners as follows:

		Amount of	Additions
Petitioners	Year	Deficiency	to Tax *
B. H. Bickers and
Lucille M. Bickers	1953	$15,740.83	$ 787.04
B. H. Bickers	1954	46,097.20	2,304.86

The deficiency for 1953 is due to the addition to the net income shown on joint return of "(a) Losses $32,300.00." This adjustment is explained in the deficiency notice as follows:

"(a) In your income tax return for the year 1953 you reported $13,200.00 from ventures determined as follows:

"Total winnings	$45,500.00
Total losses	32,300.00
Net winnings	$13,200.00

"Since you failed to substantiate any losses the amount of $32,300.00 claimed as such is hereby disallowed and your income for the year 1953 has been increased accordingly."

The deficiency for 1954 is due to the same type of adjustment as was made by the Commissioner for 1953 and is explained in the same manner. The only difference is as to amounts. The losses which the Commissioner disallowed for 1954 as offsetting losses were $70,375 in amount.

The additions to taxes are for negligence or intentional disregard of rules and regulations.

The issues presented are: (1) Whether petitioners have proved that petitioner B. H. Bickers suffered gambling losses in the amounts of $32,300 and $70,375 in 1953 and 1954, respectively, which petitioners are entitled to use as offsets to the undisputed gains which petitioner B. H. Bickers had from wagering transactions in those years, and (2) whether the deficiencies are due to negligence or intentional disregard of rules and regulations.

Findings of Fact

A stipulation of facts filed by the parties is incorporated herein by this reference.

Petitioners B. H. Bickers and Lucille M. Bickers, husband and wife residing in Dallas, Texas, filed a joint income tax return for the taxable year 1953 with the district director of internal revenue at Dallas. B. H. Bickers (hereinafter referred to as petitioner) filed an individual income tax return for the taxable year 1954 with the district director of internal revenue at Dallas.

During the years in issue, petitioner owned and operated a private club in Dallas, the income from which is not here in question. Petitioner was also a professional gambler, in which capacity he gained most of his income. He gambled on an individual basis in Texas, Colorado, Nevada, and California. His sporting operations were diversified, extending to participation in poker, dice, and gin rummy games, side bets on the same games, and wagers placed on the outcome of various athletic contests. His gambling occurred in various places, but principally in gambling casinos and country clubs. Most of petitioner's wagering took place in forms which involved a number of other participants, but some of the betting involved only one other person. Petitioner knew some of the people with whom he gambled, but not all of them.

Petitioner's only record of his gambling transactions was prepared as follows:

At some point on each day that he gambled petitioner counted the money he was carrying prior to gambling. This occurred at any time from the time he arose in the morning until immediately before engaging in wagering. At some point after he finished gambling for the day, he again counted his money. On occasion petitioner engaged in several different forms of gambling between the times he counted his money, losing at one form and winning on others. Petitioner then recorded the increase or decrease in his money as winnings or losings in his gambling on any available slip of paper, such as a matchbook cover, a cocktail napkin, or a piece of golf scorecard. The record bore the date, the amount, and the letters "W" or "L" indicating net winnings or losings for that particular day. Upon return to his office in the club he owned, petitioner placed the slips of paper in a box in his desk. Sometime after the close of each taxable year, petitioner called his secretary and another employee, known as his bookkeeper, to his office. With his secretary's aid he arranged the slips in chronological order and then read them to the bookkeeper who made entries in small notebooks, figuring a running balance. After the entries were completed, they were checked over and changes made. Petitioner threw the slips of paper away after completion of the small notebooks. The small notebooks for each of the taxable years were introduced in evidence as exhibits by petitioner.

Neither petitioner's secretary nor his bookkeeper had any knowledge of the correctness of the figures on the slips of paper. They merely assisted in transferring the amounts shown thereon to the notebooks; they endeavored to do this accurately.

The entries in the notebook for 1953 are as follows:

1953
Jan 1st	W 400		6914		6375		6187
Jan 4	W 861	Feb 12	L -115	Mar 13	W 116	Apr 20	L 240
	1261		6799		6491		5947
Jan 9	L -532	Feb 13	L -206	Mar 16	W 611	Apr 23	W 1240
	729		6593		7102		7187
Jan 15	W +439	Feb 17	L 404	Mar 21	L 501	Apr 25	W 941
Jan 18	W +361
	1529		6189		6601		8128
Jan 20	W +961	Feb 21	W 331	Mar 24	W 416	Apr 30	W 500
	2490		6520		7017		8628
Jan 23	L -88	Feb 24	W 87	Mar 26	L 787	May 4	W 986
	2402		6607		6230		9614
Jan 25	W 1647	Feb 26	W 400	Mar 30	L 498	May 5	L 211
	4049		7007		5732		9403
Jan 27	L 1516	Feb 28	L 1561	Apr 3	W 1103	May 7	W 406
	2533		5446		6835		9809
Jan 29	W 721	Mar 1st	W 1260	Apr 7	W 100	May 8	W 202
	3254		6706		6935		10011
Feb 2	W 1629	Mar 9	W 398	Apr 10	L 811	May 10	L 2150
	4883		7104		6124		7861
Feb 4	W 1421	Mar 11	L 225	Apr 14	L 240	May 11	W 380
	6304		6879		5884		8241
Feb 10	W 610	Mar 12	L 504	Apr 16	W 303	May 15	W 1110
	6914		6375		6187		9351
	9351		8578		12656		13650
May 19	W 100	July 4	W 300	Sept 11	L 675	Nov 7	L 305
	9451		8878		11981		13345
May 20	W 240	July 6	W 1000	Sept 13	L 546	Nov 10	L 486
	9691		9878		11435		12859
May 25	L 1824	July 10	L 650	Sept 17	W 530	Nov 12	W 590
	7867		9228		11965		13449
May 26	L 706	July 12	L 407	Sept 19	W 45	Nov 14	W 460
	7161		8821		12010		13909
May 27	L 775	July 15	W 840	Sept 21	W 437	Nov 18	W 300
	6386		9661		12447		14209
May 29	W 335	July 20	W 260	Sept 25	L 150	Nov 21	W 486
	6721		9921		12297		14695
June 1	W 1006	July 23	W 489	Sept 27	W 335	Nov 26	W 261
	7727		10410		12632		14956
June 3	W 811	July 30	W 97	Sept 28	W 262	Nov 28	W 386
	8538		10507		12894		15342
June 6	W 336	Aug 1	W 205	Sept 30	W 1165	Nov 29	W 101
	8874		10712		14059		15443
June 8	L 330	Aug 8	W 316	Oct 1	W 297	Dec 1	W 480
	8544		11028		14356		15923
June 10	W 600	Aug 10	W 510	Oct 3	L 841	Dec 3	W 655
	9144		11538		13515		16578
June 10	L 462	Aug 13	W 255	Oct 5	L 136	Dec 5	W 265
	8682		11793		13379		16843
June 12	L 54	Aug 15	L 1320	Oct 8	L 504	Dec 7	W 100
	8628		10473		12875		16943
June 14	W 226	Aug 18	L 415	Oct 10	W 675	Dec 9	L 2050
	8854		10058		13550		14893
June 18	W 115	Aug 21	W 361	Oct 13	L 285	Dec 10	L 241
	8969		10419		13265		14652
June 20	L 1050	Aug 24	L 350	Oct 17	W 1010	Dec 12	W 540
	7919		10069		14275		15192
June 21	W 401	Aug 26	W 1120	Oct 19	W 361	Dec 13	W 335
	8320		11189		14636		15527
June 23	W 500	Aug 27	W 1241	Oct 22	W 209	Dec 16	W 247
	8820		12430		14845		15774
June 25	W 323	Aug 30	L 890	Oct 26	L 640	Dec 18	W 245
							16019
	9143		11540		14205	Dec 20	L 1250
June 27	L 387	Sept 4	W 555	Oct 28	W 260
							14769
	8756		12095		14465	Dec 22	L 705
June 29	W 210	Sept 5	W 110	Oct 30	W 335		14064
	8966		12205		14800	Dec 23	W 360
June 30	L 903	Sept 7	W 406	Nov 3	L 600		14424
						Dec 28	L 904
	8063		12611		14200
July 2	W 515	Sept 9	W 45	Nov 5	L 550		13520
						Dec 29	L 320
	8578		12656		13650		13200

Many figures and letters in the notebook have been changed, either by partial erasures and insertion of new figures and letters or merely by writing new figures and letters over those originally written.

Of the amounts recorded in the notebook as losses for 1953, petitioner sustained losses from gambling during that year in the amount of $21,682.

The entries in the notebook for 1954 are as follows:

1954
Jan 1st	W 3500		5750		11750		8000
Jan 4	L 1500	Mar 2	W 2250	May 10	W 1250	July 24	W 500
	2000		8000		13000		8500
Jan 7	W 1250	Mar 6	W 500	May 14	L 2500	July 28	W 1750
	3250		8500		10500		10250
Jan 10	W 1000	Mar 10	W 250	May 18	L 2500	July 31	W 250
	4250		8750		8000		10500
Jan 12	W 2250	Mar 15	L 1250	May 21	L 250	Aug 2	L 250
	6500		7500		7750		10250
Jan 14	L 1500	Mar 19	L 1000	May 25	W 1250	Aug 6	L 1750
	5000		6500		9000		8500
Jan 16	L 1000	Mar 22	W 2500	May 28	L 500	Aug 10	L 250
	4000		9000		8500		8250
Jan 18	W 2750	Mar 25	W 1750	June 2	W 2750	Aug 14	W 2250
	6750		10750		11250		10500
Jan 21	L 1750	Mar 29	W 1250	June 5	L 250	Aug 18	W 1500
	5000		12000		11000		12000
Jan 25	W 1250	Mar 31	W 250	June 10	L 500	Aug 21	L 750
	6250		12250		10500		11250
Jan 28	W 1750	Apr 3	W 750	June 14	L 250	Aug 25	W 2750
	8000		13000		10250		14000
Jan 31	W 1750	Apr 6	L 1750	June 18	L 250	Aug 30	L 1250
	9750		11250		10000		12750
Feb 2	L 750	Apr 10	L 1250	June 21	W 1500	Sept 3	L 1750
	9000		10000		11500		11000
Feb 5	L 1250	Apr 14	L 2500	June 24	W 750	Sept 6	L 1500
	7750		7500		12250		9500
Feb 9	L 1750	Apr 17	W 1250	June 28	L 1000	Sept 10	L 1225
	6000		8750		11250		8275
Feb 12	W 750	Apr 20	W 2250	July 2	W 1250	Sept 14	W 2500
	6750		11000		12500		10775
Feb 15	W 250	Apr 24	W 750	July 6	W 1750	Sept 18	W 1750
	7000		11750		14250		12525
Feb 18	L 2500	Apr 27	W 1250	July 10	W 250	Sept 22	W 500
	4500		13000		14500		13025
Feb 22	L 1500	Apr 30	L 2750	July 13	L 2500	Sept 25	W 1575
	3000		10250		12000		14600
Feb 26	W 1000	May 3	W 250	July 16	L 1500	Sept 29	L 1900
	4000		10500		10500		12700
Feb 28	W 1750	May 7	W 1250	July 20	L 2500	Oct 4	L 2250
	5750		11750		8000		10450
	10450		10500		10000		9500
Oct 9	L 1750	Nov 2	L 1500	Nov 27	W 1000	Dec 22	W 1500
	8700		9000		11000		11000
Oct 12	W 2800	Nov 6	L 1500	Nov 30	W 1500	Dec 24	W 2000
	11500		7500		12500		13000
Oct 15	L 2500	Nov 9	W 2500	Dec 3	L 2000	Dec 26	L 1500
	9000		10000		10500		11500
Oct 19	L 500	Nov 13	W 500	Dec 7	L 1500	Dec 28	W 2500
	8500		10500		9000		14000
Oct 23	W 500	Nov 16	L 1750	Dec 12	W 2000	Dec 29	L 1500
	9000		8750		11000		12500
Oct 27	W 2750	Nov 20	L 250	Dec 15	L 500	Dec 30	W 500
	11750		8500		10500		13000
Oct 30	L 1250	Nov 23	W 1500	Dec 18	L 1000
	10500		10000		9500

As was the case with the 1953 notebook, there are many changes and partial erasures in the notebook for 1954.

Of the amounts recorded in the notebook as losses for 1954, petitioner sustained losses from gambling during that year in the amount of $46,219.

Agents of the internal revenue service examined petitioner's returns several times in the years prior to the years here in question and in the course of such examinations they worked net worth statements on petitioner. On February 18, 1952, a notice was served upon petitioner advising him that he was not maintaining sufficient records for the purpose of determining his correct liability for Federal income taxes; that each taxpayer is required by law to make a return of his correct income; and that he must, therefore, maintain such accounting records as would enable him to do so. The notice contains, among other things, the following:

"This is an official notice to you to keep complete records from which your tax liability may be properly determined. Continuing failure to keep such records may subject you to the penalties provided by law. The records you are required to keep include records showing in detail each transaction engaged in by you, including the date thereof, the amount of each item of gross income received, and a description of the nature of the income so received. Detailed records should also be maintained of all payments made by you, including the date of each payment, the name of the payee, address of payee, and a description of the nature of each payment.

"Section 29.54-1 of Regulations 111 provides in part as follows:

"'The books or records required by this section shall be kept at all times available for inspection by internal-revenue officers, and shall be retained so long as the contents thereof may become material in the administration of any internal-revenue law.'"

Petitioner failed either negligently or intentionally to keep and retain such books and records as to enable accurate determination of his liability to income taxes during the years in issue.

Opinion

BLACK, Judge: Petitioner attacks the respondent's determinations of deficiencies in his income taxes for the years 1953 and 1954 as arbitrary and invalid. For 1953 and 1954, petitioner returned $13,200 and $13,000, respectively, as sums which he claims represent his income from gambling during those years. On his returns he sought no business deductions from those sums. During the course of investigation by an internal revenue agent, petitioner produced two small notebooks in which he had listed $45,500 and $83,375 as winnings from gambling received in those years. He had offset these winnings by claimed losses of $32,300 in 1953 and $70,375 in 1954. Respondent's deficiency notices increase petitioner's income for those years by the amounts shown in the notebooks as losses. It is clear from the record that each amount entered in the notebooks as a winning represented gain from at least one closed gambling transaction and in some instances the net gain on several closed gambling transactions. The yearly totals of the daily winnings were includible in petitioner's annual gross income as defined in section 22(a) of the 1939 Code and section 61(a) of the 1954 Code. ¹ Cf. Winkler v. United States, 230 F. 2d 766. But petitioner is entitled to offset his wagering gains by his wagering losses. Section 23(h), 1939 Code, reads: "(h) Wagering Losses. - Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions." Section 165(d), 1954 Code, which is applicable to the taxable year 1954, is to the same effect.

Respondent, in the deficiency notices, disallowed, as unsubstantiated, deduction of claimed gambling losses as shown in the notebooks in the amounts of $32,300 and $70,375 in 1953 and 1954, respectively. In the year immediately prior to the years in issue petitioner had been served with a notice to maintain and retain records from which his tax liability could accurately be determined. Petitioner's only records of the claimed losses are, at best admittedly secondary evidence, prepared after the close of each taxable year from various types of memoranda described in our Findings of Fact. Respondent has accepted the winnings as shown in the notebooks compiled by petitioner for the years 1953 and 1954 as being correct but has refused to accept as being substantiated the wagering losses shown on such notebooks. Therefore, in his determination of the deficiencies respondent has included in petitioner's income all of his wagering gains shown in the notebooks and has not allowed any offsetting losses shown in the same notebooks. Respondent called no witnesses in support of his determination, but, as we said in Anthony Delsanter, 28 T.C. 845, at 858:

"The burden was on the petitioner to show that the determination was erroneous. If that burden was difficult to meet by reason of their destruction of their records, it is a situation that they created for themselves. But they cannot shift the burden to the Commissioner and then complain that, since he has not put witnesses on the stand justifying his determination, it is arbitrary and must therefore be disapproved. * * *"

Although we have concluded that respondent's disallowance of offsetting losses was erroneous in part, we do not conclude that it is arbitrary and invalid as petitioner contends. Cf. Marx v. Commissioner, 179 F. 2d 938.

We must now consider what losses, if any, petitioner has proved that he suffered during the year in issue. "In seeking a deduction the taxpayer has a burden greater than merely proving the Commissioner wrong; he must establish the essential facts from which a correct determination can be made." Mahler v. Commissioner, 119 F. 2d 869, 870. Petitioner asserts that he suffered the losses reflected in the notebooks. After a careful consideration of all the evidence in the record, we are unable to accept petitioner's claim that he incurred the offsetting wagering losses to the extent that he claims. His testimony was to the effect that at some point in the day prior to gambling he counted his money and he counted it again subsequent to gambling, apparently shortly after cessation of daily gambling activities. He further testified that he made personal expenditures while gambling. There is no evidence that he maintained a separate "bankroll" for gambling. The opportunity, under such a system, for including extensive personal expenses in the daily decreases in cash which petitioner recorded as losses is so clear that we are unable to accept the figures in the notebooks as truly portraying his gambling losses.

We are satisfied, however, from the whole record, that petitioner suffered substantial gambling losses, as well as gains, during the years in issue, and that loss entries in the notebooks, adjusted to reflect omission of those of which we are unconvinced, are reflective of the wagering losses sustained. We have concluded, therefore, in the exercise of our best judgment and bearing heavily upon petitioner whose inexactitude is of his own making, that petitioner suffered offsetting wagering losses during the years in issue in the amounts set forth in our Findings of Fact. Cf. Cohan v. Commissioner, 39 F. 2d 540.

Respondent has determined additions to the taxes here in issue for negligence or intentional disregard of rules and regulations under section 293(a), 1939 Code, and section 6653(a), 1954 Code. Petitioner had been subjected to investigations by internal revenue agents at other times prior to the years in issue. In 1952 he was served, pursuant to section 54(b), 1939 Code, with a notice to maintain and retain adequate records from which his tax liability could be determined. We have already concluded that petitioner's records did not accurately reflect his income, and viewing the facts in their most favorable light, petitioner was, at best, negligent in failing to maintain and retain better records. We sustain, therefore, these additions, modified to reflect reductions in the determined deficiencies.

Decisions will be entered under Rule 50.

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Footnotes

• *. Imposed under section 293(a), Internal Revenue Code of 1939, for taxable year 1953, and under section 6653(a), Internal Revenue Code of 1954, for taxable year 1954.

• 1. SEC. 22. GROSS INCOME.

  (a) General Definition. - "Gross income" includes gains, profits, and income derived from salaries, wages, or compensation for personal service (including personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing), of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *

  [For the purposes of this case, section 61(a) of the 1954 Code is to the same effect.]