Memorandum

MEMORANDUM

TO:       Dr. Green

FROM:  Tamara Tran

DATE:   October 6, 2010

RE:       Tax Memo #1/Gambling Activities

http://blog.pappastax.com/index.php/2009/04/05/tax-court-update-march-2009-when-is-gambling-considered-a-trade-or-business/

Issue One & Facts

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 or business status.

Internal Revenue Code

Internal Revenue Code Section 162(a) applies to Dr. Greens’ case because the determination of whether he is engaged in a trade or business remains one of facts and circumstances. However, in determining when the gambling activities of Dr. Green constitute a trade or business the taxpayer will need to prove the activities will be for profit and not a hobby. When dealing with the IRS, a few factors must be considered:

* gambling activities are entered into 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;

* taxpayer maintains adequate records of winnings and losses

Since Dr. Green does not carry on his gambling activities at least half the year, according to Section 162, it does not constitute as a trade or business.

Treasury Regulation

According to Treasury Regulation 1.183-2(a), to determine whether Dr. Green is in a trade or business of gambling or merely pursuing a hobby:

1. Manner in Which Activity is Carried On – Is the business carried on a businesslike manner. For example, are there a written business plan, a separate bank account, regular and...