Tax Memorandum

To: Dr. Green

Date: 1/31/2010

RE: Tax Memo #1/Gambling Activities

Issue #1

Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas every other weekend to gamble. He would like to know what criteria are used to determine whether his gambling activities constitute a trade or business for federal income tax purposes and whether or not you think his gambling activities qualify for trade of business status.

In the case of Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court "requires an examination of the facts in each case." In addition, the court ruled, "if one’s gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes…." The factors which must be considered in determining whether your gambling activity constitute as a trade or business for federal income tax purposes include:

* gambling activities are entered into and carried on in good faith for the purpose of making a profit;

* gambling activities are carried on with regularity;

* gambling activities are pursued on a full-time basis, or to the fullest extent possible if taxpayer is engaged in another trade or business or has employment elsewhere;

* gambling activities are solely for the taxpayer’s own account and taxpayer does not function as a bookmaker;

* taxpayer maintains adequate records, including accounting of daily wagers, winnings and losses (IRS Rev Proc. 77-29);

* the extent and nature of taxpayer’s activities which further the development of a gambling enterprise; and

* taxpayer claims deductions associated with the conduct of a trade or business for gambling-related expenses.

Your casual gambling activity does not qualify as a trade or business. Casual gambling is simply weekend recreation and does not constitute as a profession or a...