For most of 1978, respondent devoted 60 to 80 hours per week to
parimutuel wagering on dog races with a view to earning a living
from such activity, had no other employment, and gambled solely for
his own account. His efforts generated gross winnings of $70,000 on
bets of $72,032, for a net gambling loss for the year of $2,032.
Although he reported this loss on his 1978 tax return, he did not
utilize it in computing his adjusted gross income or claim it as a
deduction. Upon audit, the Commissioner of Internal Revenue
determined that, under the Internal Revenue Code of 1964 (Code) as
it existed in 1978, respondent was subject to a minimum tax because
part of the gambling loss deduction to which he was entitled was an
"ite[m] of tax preference." Under the Code, such items could be
lessened by certain deductions that were "attributable to a trade
or business carried on by the taxpayer." In redetermining
respondent's tax deficiency, the Tax Court held that he was in the
"trade or business" of gambling, so that no part of his gambling
losses was an item of tax preference subjecting him to a minimum
tax for 1978. The Court of Appeals affirmed.
Held: A full-time gambler who makes wagers solely for
his own account is engaged in a "trade or business" within the
meaning of Code §§162(a) and 62(1). Pp.
480 U. S.
27-36.
771 F.2d 269, affirmed.
BLACKMUN, J., delivered the opinion of the Court, in which
BRENNAN, MARSHALL, POWELL, STEVENS, and O'CONNOR, JJ., joined.
WHITE, J., filed a dissenting opinion, in which REHNQUIST, C. J.,
and SCALIA, J., joined,
post, p.
480 U. S.
37.
Page 480 U. S. 24
JUSTICE BLACKMUN delivered the opinion of the Court.
The issue in this case is whether a full-time gambler who makes
wagers solely for his own account is engaged in a "trade or
business," within the meaning of §§162(a) and 62(1) of the Internal
Revenue Code of 1954,
as amended, 26 U.S.C. §§162(a) and
62(1) (1976 ed. and Supp. V). [
Footnote 1] The tax year with which we here are concerned
is the calendar year 1978; technically, then, we look to the Code
as it read at that time.
I
There is no dispute as to the facts. The critical ones are
stipulated.
See App. 9. Respondent Robert P. Groetzinger
had worked for 20 years in sales and market research for an
Illinois manufacturer when his position was terminated in February,
1978. During the remainder of that year, respondent busied himself
with parimutuel wagering, primarily on greyhound races. He gambled
at tracks in Florida and Colorado. He went to the track 6 days a
week for 48 weeks in 1978. He spent a substantial amount of time
studying racing forms, programs, and other materials. He devoted
from 60 to 80 hours each week to these gambling-related endeavors.
He never placed bets on behalf of any other person, or sold tips,
or collected commissions for placing bets, or functioned as a
bookmaker. He gambled solely for his own account. He had no other
profession or type of employment. [
Footnote 2]
Page 480 U. S. 25
Respondent kept a detailed accounting of his wagers, and every
day noted his winnings and losses in a record book. In 1978, he had
gross winnings of $70,000, but he bet $72,032; he thus realized a
net gambling loss for the year of $2,032.
Respondent received $6,498 in income from other sources in 1978.
This came from interest, dividends, capital gains, and salary
earned before his job was terminated.
On the federal income tax return he filed for the calendar year
1978, respondent reported as income only the $6,498 realized from
nongambling sources. He did not report any gambling winnings or
deduct any gambling losses. [
Footnote 3] He did not itemize deductions. Instead, he
computed his tax liability from the tax tables.
Upon audit, the Commissioner of Internal Revenue determined that
respondent's $70,000 in gambling winnings were to be included in
his gross income, and that, pursuant to §165(d) of the Code, 26
U.S.C. §165(d), a deduction was to be allowed for his gambling
losses to the extent of these gambling gains. But the Commissioner
further determined that, under the law as it was in 1978, a portion
of respondent's $70,000 gambling-loss deduction was an item of tax
preference and operated to subject him to the minimum tax under
§56(a) of the Code, 26 U.S.C. §56(a) (1976 ed.). At that time,
under statutory provisions in effect from 1976 until 1982, "items
of tax preference" were lessened by certain deductions, but not by
deductions not "attributable to a trade or business carried on by
the taxpayer." §§57(a)(1) and (b)(1)(A), and §62(1), 26 U.S.C.
§§57(a)(1) and (b)(1)(A), and §62(1) (1976 ed. and Supp. I).
[
Footnote 4]
Page 480 U. S. 26
These determinations by the Commissioner produced a § 56(a)
minimum tax of $2,142 and, with certain other adjustments not now
in dispute, resulted in a total asserted tax deficiency of $2,522
for respondent for 1978.
Respondent sought redetermination of the deficiency in the
United States Tax Court. That court, in a reviewed decision, with
only two judges dissenting, held that respondent was in the trade
or business of gambling, and that, as a consequence, no part of his
gambling losses constituted an item of tax preference in
determining any minimum tax for 1978. 82 T.C. 793 (1984). In so
ruling, the court adhered to its earlier court-reviewed decision in
Ditunno v. Commissioner, 80 T.C. 362 (1983). The court in
Ditunno, id. at 371, had overruled
Gentile v.
Commissioner, 65 T.C. 1 (1975), a case where it had rejected
the Commissioner's contention (contrary to his position here) that
a full-time gambler was in a trade or business, and therefore was
subject to self-employment tax.
The United States Court of Appeals for the Seventh Circuit
affirmed. 771 F.2d 269 (1985). Because of a conflict on the issue
among Courts of Appeals, [
Footnote
5] we granted certiorari. 475 U.S. 1080 (1986).
Page 480 U. S. 27
II
The phrase "trade or business" has been in §162(a) and in that
section's predecessors for many years. Indeed, the phrase is common
in the Code, for it appears in over 50 sections and 800 subsections
and in hundreds of places in proposed and final income tax
regulations. The slightly longer phrases, "carrying on a trade or
business" and "engaging in a trade or business," themselves are
used no less than 60 times in the Code. The concept thus has a
well-known and almost constant presence on our tax-law terrain.
Despite this, the Code has never contained a definition of the
words "trade or business" for general application, and no
regulation has been issued expounding its meaning for all purposes.
[
Footnote 6] Neither has a
broadly applicable authoritative judicial definition emerged.
[
Footnote 7] Our task in this
case is to ascertain the meaning of the phrase as it appears in the
sections of the Code with which we are here concerned. [
Footnote 8]
In one of its early tax cases,
Flint v. Stone Tracy
Co., 220 U. S. 107
(1911), the Court was concerned with the Corporation Tax imposed by
§ 38 of the Tariff Act of 1909, ch. 6, 36 Stat. 112-117, and the
status of being engaged in business. It said: "
Business' is a
very comprehensive term
Page 480 U. S.
28
and embraces everything about which a person can be
employed." 220 U.S. at 220 U. S. 171.
It embraced the Bouvier Dictionary definition: "That which occupies
the time, attention and labor of men for the purpose of a
livelihood or profit." Ibid. See also Helvering v. Horst,
311 U. S. 112,
311 U. S. 118
(1940). And Justice Frankfurter has observed that "we assume that
Congress uses common words in their popular meaning, as used in the
common speech of men." Frankfurter, Some Reflections on the Reading
of Statutes, 47 Colum.L.Rev. 527, 536 (1947).
With these general comments as significant background, we turn
to pertinent cases decided here.
Snyder v. Commissioner,
295 U. S. 134
(1935), had to do with margin trading and capital gains, and held,
in that context, that an investor, seeking merely to increase his
holdings, was not engaged in a trade or business. Justice Brandeis,
in his opinion for the Court, noted that the Board of Tax Appeals
theretofore had ruled that a taxpayer who devoted the major portion
of his time to transactions on the stock exchange for the purpose
of making a livelihood could treat losses incurred as having been
sustained in the course of a trade or business. He went on to
observe that no facts were adduced in
Snyder to show that
the taxpayer "might properly be characterized as a
trader on an
exchange who makes a living in buying and selling securities.'"
Id. at 295 U. S. 139.
These observations, thus, are dicta, but, by their use, the Court
appears to have drawn a distinction between an active trader and an
investor.
In
Deputy v. Du Pont, 308 U. S. 488
(1940), the Court was concerned with what were "ordinary and
necessary" expenses of a taxpayer's trade or business, within the
meaning of §23(a) of the Revenue Act of 1928, 45 Stat. 799. In
ascertaining whether carrying charges on short sales of stock were
deductible as ordinary and necessary expenses of the taxpayer's
business, the Court
assumed that the activities of the
taxpayer in conserving and enhancing his estate constituted a trade
or business, but nevertheless disallowed the
Page 480 U. S. 29
claimed deductions because they were not "ordinary" or
"necessary." 308 U.S. at
308 U. S.
493-497. Justice Frankfurter, in a concurring opinion
joined by Justice Reed, did not join the majority. He took the
position that whether the taxpayer's activities constituted a trade
or business was "open for determination,"
id. at
308 U. S. 499,
and observed:
". . . 'carrying on any trade or business,' within the
contemplation of §23(a), involves holding one's self out to others
as engaged in the selling of goods or services. This the taxpayer
did not do. . . . Without elaborating the reasons for this
construction, and not unmindful of opposing considerations,
including appropriate regard for administrative practice, I prefer
to make the conclusion explicit instead of making the hypothetical
litigation-breeding assumption that this taxpayer's activities, for
which expenses were sought to be deducted, did constitute a 'trade
or business.'"
Ibid.
Next came
Higgins v. Commissioner, 312 U.
S. 212 (1941). There the Court, in a bare and brief
unanimous opinion, ruled that salaries and other expenses incident
to looking after one's own investments in bonds and stocks were not
deductible under § 23(a) of the Revenue Act of 1932, 47 Stat. 179,
as expenses paid or incurred in carrying on a trade or business.
While surely cutting back on
Flint's broad approach, the
Court seemed to do little more than announce that, since 1918, "the
present form [of the statute] was fixed and has so continued"; that
"[n]o regulation has ever been promulgated which interprets the
meaning of
carrying on a business'"; that the comprehensive
definition of "business" in Flint was "not controlling in
this dissimilar inquiry"; that the facts in each case must be
examined; that not all expenses of every business transaction are
deductible; and that
"[n]o matter how large the estate or how continuous or extended
the work required may be, such facts are not sufficient as a matter
of law to permit the courts to reverse the decision of the
Board."
312 U.S. at
312 U. S.
215-218. The opinion, therefore -- although devoid
Page 480 U. S. 30
of analysis and not setting forth what elements, if any, in
addition to profit motive and regularity, were required to render
an activity a trade or business -- must stand for the propositions
that full-time market activity in managing and preserving one's own
estate is not embraced within the phrase "carrying on a business,"
and that salaries and other expenses incident to the operation are
not deductible as having been paid or incurred in a trade or
business. [
Footnote 9]
See
also United States v. Gilmore, 372 U. S.
39,
372 U. S. 44-45
(1963);
Whipple v. Commissioner, 373 U.
S. 193 (1963). It is of interest to note that, although
Justice Frankfurter was on the
Higgins Court and this time
did not write separately, and although Justice Reed, who had joined
the concurring opinion in
Du Pont, was the author of the
Higgins opinion, the Court in that case did not even cite
Du Pont, and thus paid no heed whatsoever to the content
of Justice Frankfurter's pronouncement in his concurring opinion.
[
Footnote 10] Adoption of
the Frankfurter gloss obviously would have disposed of the case in
the Commissioner's favor handily and automatically, but that easy
route was not followed.
Less than three months later, the Court considered the issue of
the deductibility, as business expenses, of estate and trust fees.
In unanimous opinions issued the same day and written by Justice
Black, the Court ruled that the efforts
Page 480 U. S. 31
of an estate or trust in asset conservation and maintenance did
not constitute a trade or business.
City Bank Farmers Trust Co.
v. Helvering, 313 U. S. 121
(1941);
United States v. Pyne, 313 U.
S. 127 (1941). The
Higgins case was deemed to
be relevant and controlling. Again, no mention was made of the
Frankfurter concurrence in
Du Pont. Yet Justices Reed and
Frankfurter were on the Court.
Snow v. Commissioner, 416 U. S. 500
(1974), concerned a taxpayer who had advanced capital to a
partnership formed to develop an invention. On audit of his 1966
return, a claimed deduction under §174(a)(1) of the 1954 Code for
his
pro rata share of the partnership's operating loss was
disallowed. The Tax Court and the Sixth Circuit upheld that
disallowance. This Court reversed. Justice Douglas, writing for the
eight Justices who participated, observed:
"Section 174 was enacted in 1954 to dilute some of the
conception of 'ordinary and necessary' business expenses under
§162(a) (then § 23(a)(1) of the Internal Revenue Code of 1939)
adumbrated by Mr. Justice Frankfurter in a concurring opinion in
Deputy v. Du Pont . . . where he said that the section in
question . . . 'involves holding one's self out to others as
engaged in the selling of goods or services.'"
416 U.S. at
416 U. S.
502-503. He went on to state,
id. at
416 U. S. 503,
that §162(a) "is more narrowly written than is §174.
From these observations and decisions, we conclude (1) that, to
be sure, the statutory words are broad and comprehensive
(
Flint); (2) that, however, expenses incident to caring
for one's own investments, even though that endeavor is full time,
are not deductible as paid or incurred in carrying on a trade or
business (
Higgins; City Bank; Pyne); (3) that the opposite
conclusion may follow for an active trader (Snyder); (4) that
Justice Frankfurter's attempted gloss upon the decision in Du Pont
was not adopted by the Court in that case; (5) that the Court,
indeed, later characterized it as an "adumbration" (Snow); and (6)
that the Frankfurter observation, specifically or by implication,
never has been accepted
Page 480 U. S. 32
as law by a majority opinion of the Court, and more than once
has been totally ignored. We must regard the Frankfurter gloss
merely as a two-Justice pronouncement in a passing moment and,
while entitled to respect, as never having achieved the status of a
Court ruling. One also must acknowledge that
Higgins, with
its stress on examining the facts in each case, affords no readily
helpful standard, in the usual sense, with which to decide the
present case and others similar to it. The Court's cases, thus,
give us results, but little general guidance.
III
Federal and state legislation and court decisions, perhaps
understandably, until recently have not been noticeably favorable
to gambling endeavors, and even have been reluctant to treat
gambling on a parity with more "legitimate" means of making a
living.
See, e.g., §4401
et seq. of the Code;
Marchetti v. United States, 390 U. S.
39,
390 U. S. 44-46,
and nn. 5 and 6 (1968). [
Footnote 11] And the confinement of gambling-loss
deductions to the amount of gambling gains, a provision brought
into the income tax law as § 23(g) of the Revenue Act of 1934, 48
Stat. 689, and carried forward into §165(d) of the 1954 Code,
closed the door on suspected abuses,
see H.R.Rep. No. 704,
73d Cong., 2d Sess., 22 (1934); S.Rep. No. 558, 73d Cong., 2d
Sess., 25 (1934), but served partially to differentiate genuine
gambling losses from many other types of adverse financial
consequences sustained during the tax year. Gambling winnings,
however, have not been isolated from gambling losses. The Congress
has been realistic enough to recognize that such losses do exist
and do have some effect on income, which is the primary focus of
the federal income tax.
The issue this case presents has "been around" for a long time
and, as indicated above, has not met with consistent treatment in
the Tax Court itself or in the Federal Courts of
Page 480 U. S. 33
Appeals. The Seventh Circuit, in the present case, said the
issue "has proven to be most difficult and troublesome over the
years." 771 F.2d at 271. The difficulty has not been ameliorated by
the persistent absence of an all-purpose definition, by statute or
regulation, of the phrase "trade or business" which so frequently
appears in the Code. Of course, this very frequency well may be the
explanation for legislative and administrative reluctance to take a
position as to one use that might affect, with confusion, so many
others.
Be that as it may, this taxpayer's case must be decided and,
from what we have outlined above, must be decided in the face of a
decisional history that is not positive or even fairly indicative,
as we read the cases, of what the result should be. There are,
however, some helpful indicators.
If a taxpayer, as Groetzinger is stipulated to have done in
1978, devotes his full-time activity to gambling, and it is his
intended livelihood source, it would seem that basic concepts of
fairness (if there be much of that in the income tax law) demand
that his activity be regarded as a trade or business just as any
other readily accepted activity, such as being a retail store
proprietor or, to come closer categorically, as being a casino
operator or as being an active trader on the exchanges.
It is argued, however, that a full-time gambler is not offering
goods or his services, within the line of demarcation that Justice
Frankfurter would have drawn in
Du Pont. Respondent
replies that he indeed is supplying goods and services, not only to
himself but, as well, to the gambling market; thus, he says, he
comes within the Frankfurter test even if that were to be imposed
as the proper measure. "It takes two to gamble." Brief for
Respondent 3. Surely, one who clearly satisfies the Frankfurter
adumbration usually is in a trade or business. But does it
necessarily follow that one who does not satisfy the Frankfurter
adumbration is not in a trade or business? One might well feel that
a full-time gambler
Page 480 U. S. 34
ought to qualify as much as a full-time trader, [
Footnote 12] as Justice Brandeis in
Snyder implied and as courts have held. [
Footnote 13] The Commissioner, indeed,
accepts the trader result. Tr. of Oral Arg. 17. In any event, while
the offering of goods and services usually would qualify the
activity as a trade or business, this factor, it seems to us, is
not an absolute prerequisite.
We are not satisfied that the Frankfurter gloss would add any
helpful dimension to the resolution of cases such as this one, or
that it provides a "sensible test," as the Commissioner urges.
See Brief for Petitioner 36. It might assist now and then,
when the answer is obvious and positive, but it surely is capable
of breeding litigation over the meaning of "goods," the meaning of
"services," or the meaning of "holding one's self out." And we
suspect that -- apart from gambling -- almost every activity would
satisfy the gloss. [
Footnote
14] A test that everyone passes is not a test at all. We
therefore now formally reject the Frankfurter gloss, which the
Court has never adopted anyway.
Page 480 U. S. 35
Of course, not every income-producing and profit-making endeavor
constitutes a trade or business. The income tax law, almost from
the beginning, has distinguished between a business or trade, on
the one hand, and "transactions entered into for profit but not
connected with . . . business or trade," on the other.
See
Revenue Act of 1916, §5(a), Fifth, 39 Stat. 759. Congress
"distinguished the broad range of income or profit producing
activities from those satisfying the narrow category of trade or
business."
Whipple v. Commissioner, 373 U.S. at
373 U. S. 197.
We accept the fact that, to be engaged in a trade or business, the
taxpayer must be involved in the activity with continuity and
regularity, and that the taxpayer's primary purpose for engaging in
the activity must be for income or profit. A sporadic activity, a
hobby, or an amusement diversion does not qualify.
It is suggested that we should defer to the position taken by
the Commissioner and by the Solicitor General, but, in the absence
of guidance, for over several decades now, through the medium of
definitive statutes or regulations, we see little reason to do so.
We would defer, instead, to the Code's normal focus on what we
regard as a common-sense concept of what is a trade or business.
Otherwise, as here, in the context of a minimum tax, it is not too
extreme to say that the taxpayer is being taxed on his gambling
losses, [
Footnote 15] a
result distinctly out of line with the Code's focus on income.
We do not overrule or cut back on the Court's holding in
Higgins when we conclude that, 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 with
which we are here concerned. Respondent
Page 480 U. S. 36
Groetzinger satisfied that test in 1978. Constant and
large-scale effort on his part was made. Skill was required and was
applied. He did what he did for a livelihood, though with a
less-than-successful result. This was not a hobby or a passing
fancy or an occasional bet for amusement.
We therefore adhere to the general position of the
Higgins Court, taken 46 years ago, that resolution of this
issue "requires an examination of the facts in each case." 312 U.S.
at
312 U. S. 217.
This may be thought by some to be a less-than-satisfactory
solution, for facts vary.
See Boyle, What is a Trade or
Business?, 39 Tax Lawyer 737, 767 (1986); Note, The Business of
Betting: Proposals for Reforming the Taxation of Business Gamblers,
38 Tax Lawyer 759 (1985); Lopez, Defining "Trade or Business" Under
the Internal Revenue Code: A Survey of Relevant Cases, 11
Fla.St.U.L.Rev. 949 (1984).
Cf. Comment, Continuing
Vitality of the "Goods or Services" Test, 15 U.Balt.L.Rev. 108
(1985). But the difficulty rests in the Code's wide utilization in
various contexts of the term "trade or business," in the absence of
an all-purpose definition by statute or regulation, and in our
concern that an attempt judicially to formulate and impose a test
for all situations would be counterproductive, unhelpful, and even
somewhat precarious for the overall integrity of the Code. We leave
repair or revision, if any be needed, which we doubt, to the
Congress, where we feel, at this late date, the ultimate
responsibility rests.
Cf. Flood v. Kuhn, 407 U.
S. 258,
407 U. S.
269-285 (1972). [
Footnote 16]
The judgment of the Court of Appeals is affirmed.
It is so ordered.
Page 480 U. S. 37
[
Footnote 1]
All references herein to the Internal Revenue Code are to the
1964 Code, not to the Internal Revenue Code of 1986, as it has been
designated by § 2(a) of the Tax Reform Act of 1986, 100 Stat.
2096.
[
Footnote 2]
The Tax Court put it this way:
"It is not disputed that petitioner, during 1978, was engaged
full-time in parimutuel wagering on dog races, had no other
employment during that period, gambled solely for his own account,
and devoted an extraordinary amount of time and effort to his
gambling with a view to earning a living from such activity."
82 T.C. 793, 795 (1984).
[
Footnote 3]
Respondent, however, did report his net gambling loss of $2,032
in Schedule E (Supplemental Income Schedule) of his return, but he
did not utilize that amount in computing his adjusted gross income
or claim it as an itemized deduction.
[
Footnote 4]
This statutory scheme was amended by the Tax Equity and Fiscal
Responsibility Act of 1982, § 201(a), 96 Stat. 411. For tax years
after 1982, gambling loss deductions explicitly are excluded from
the minimum tax base. The Commissioner acknowledges that a taxpayer
like respondent for a year after 1982 would not be subject to
minimum tax liability because of his gambling-loss deduction. Brief
for Petitioner 4, n. 4.
[
Footnote 5]
Compare Nipper v. Commissioner, 746 F.2d 813 (CA11
1984),
aff'g, without opinion, 47 TCM 136, � 83,644 P-H
Memo TC (1983), and the Seventh Circuit's decision in the present
case,
with Gajewski v. Commissioner, 723 F.2d 1062 (CA2
1983),
cert. denied, 469 U.S. 818 (1984);
Estate of
Cull v. Commissioner, 746 F.2d 1148 (CA6 1984),
cert.
denied, 472 U.S. 1007 (1985);
and Noto v. United
States, 770 F.2d 1073 (CA3 1985),
aff'g, without
opinion, 598 F.
Supp. 440 (NJ 1984).
Despite the interim reversals by the Second and Sixth Circuit in
Gajewski and
Cull, supra, the Tax Court has
adhered to its position that a full-time gambler is engaged in a
trade or business.
See, e.g., Meredith v. Commissioner, 49
TCM 318, � 84,651 P-H Memo TC (1984);
Barrish v.
Commissioner, 49 TCM 115, � 84,602 P-H Memo TC (1984). It has
drawn no distinction between the gambler and the active market
trader.
See also Baxter v. United States, 633 F.
Supp. 912 (Nev. 1986).
[
Footnote 6]
Some sections of the Code, however, do define the term for
limited purposes.
See § 366(b)(2), 26 U.S.C. § 366(b)(2)
(distribution of stock of controlled corporation); §§602(b) and
613(b), 26 U.S.C. §§602(b) and 613(b) (exempt organizations); and §
7701(a)(26), 26 U.S.C. § 7701(a)(26) (defining the term to include
"the performance of the functions of a public office").
[
Footnote 7]
Judge Friendly some time ago observed that
"the courts have properly assumed that the term includes all
means of gaining a livelihood by work, even those which would
scarcely be so characterized in common speech."
Trent v. Commissioner, 291 F.2d 669, 671 (CA2
1961).
[
Footnote 8]
We caution that in this opinion our interpretation of the phrase
"trade or business" is confined to the specific sections of the
Code at issue here. We do not purport to construe the phrase where
it appears in other places.
[
Footnote 9]
See, however, § 212 of the 1954 Code, 26 U.S.C. § 212.
This section has its roots in § 23(a)(2) of the 1939 Code, as added
by §121 of the Revenue Act of 1942, 56 Stat. 819. It allows as a
deduction all the ordinary and necessary expenses paid or incurred
"for the management, conservation, or maintenance of property held
for the production of income," and thus overcame the specific
ruling in
Higgins that expenses of that kind were not
deductible. The statutory change, of course, does not read directly
on the term "trade or business." Obviously, though, Congress sought
to overcome
Higgins and achieved that end.
[
Footnote 10]
Deputy v. Du Pont, 308 U. S. 488
(1940), however, was cited by the parties in their Higgins briefs
submitted to this Court.
See Brief for Petitioner 28, 29,
40, and 61, and Brief for Respondent 17 and 18, in
Higgins v.
Commissioner, 0. T. 1940, No. 263.
[
Footnote 11]
Today, however, the vast majority of States permit some form of
public gambling. The lottery, bingo, parimutuel betting, jai alai,
casinos, and slot machines easily come to mind.
[
Footnote 12]
"It takes a buyer to make a seller and it takes an opposing
gambler to make a bet." Boyle, What is a Trade or Business?, 39 Tax
Lawyer 737, 763 (1986).
[
Footnote 13]
Levin v. United States, 220 Ct. Cl. 197, 206, 697 F.2d
760; 766 (1979);
Commissioner v. Nubar, 186 F.2d 684, 688
(CA4 1960),
cert. denied, 341 U.S. 926 (1961);
Fuld v.
Commissioner, 139 F.2d 466, 468-469 (CA2 1943).
See also
Moller v. United States, 721 F.2d 810 (CA Fed. 1983),
cert. denied, 467 U. S. 1261
(1984);
Purvis v. Commissioner, 630 F.2d 1332, 1334 (CA9
1976).
[
Footnote 14]
Each of the three cases in conflict with the Seventh Circuit's
decision in the present case,
see n. 6,
supra,
was a gambler's case, and adopted the Frankfurter gloss. Because
the same courts, in cases not involving gamblers, have not referred
to the Frankfurter gloss,
see Bessenyey v. Commissioner,
379 F.2d 262 (CA2),
cert. denied, 389 U.S. 931 (1967);
Gestrich v. Commissioner, 681 F.2d 806 (CA3 1982),
aff'g, without opinion, 74 T.C. 626 (1980),
Main Line
Distributors, Inc. v. Commissioner, 321 F.2d 662 (CA6 1963),
it would appear that these courts in effect were creating a special
class of, and with special rules for, the full-time gambler. We
find no warrant for this in the Code.
[
Footnote 15]
"The more he lost, the more minimum tax he had to pay." Boyle,
39 Tax Lawyer, at 754. The Commissioner concedes that application
of the goods-or-services-test here "visits somewhat harsh
consequences" on taxpayer Groetzinger, Brief for Petitioner 36, and
"points to . . . perhaps unfortunate draftsmanship."
Ibid. See
also Reply Brief for Petitioner 11.
[
Footnote 16]
It is possible, of course, that our conclusion here may subject
the gambler to self-employment tax,
see §§1401-1403 of the
Code, and therefore may not be an unmixed blessing for him. Federal
taxes, however, rest where Congress has placed them.
JUSTICE WHITE, with whom THE CHIEF JUSTICE and JUSTICE SCALIA
join, dissenting.
The 1982 amendments to the Tax Code made clear that gambling is
not a trade or business. Under those amendments, the alternative
minimum tax base equals adjusted gross income reduced by specified
amounts, including gambling losses, and increased by items not
relevant here.
See 26 U.S.C. §§ 55(b), 55(e)(1)(A), 165(d)
(1982 ed. and Supp. III). [
Footnote
2/1] If full-time gambling were a trade or business, a
full-time gambler's gambling losses would be "deductions . . .
attributable to a trade or business carried on by the taxpayer,"
and hence deductible from gross income in computing adjusted gross
income, 26 U.S.C. § 62(1), though only to the extent of gambling
winnings, 26 U.S.C. §165(d). To again subtract gambling losses (to
the extent of gambling winnings) from adjusted gross income when
computing the alternative minimum tax base would be to give the
full-time gambler a double deduction for alternative minimum tax
purposes, which was certainly not Congress' intent. [
Footnote 2/2] Thus, when Congress amended
the alternative minimum tax provisions in 1982, it implicitly
accepted the teaching of
Gentile v. Commissioner, 65 T.C.
1 (1975), that gambling is not a trade or business. [
Footnote 2/3] Groetzinger would have had no
problem under the 1982 amendments.
One could argue, I suppose, that although gambling is not a
trade or business under the 1982 amendments, it was in 1978, the
tax year at issue here. But there is certainly no indication that
Congress intended in 1982 to alter the status of gambling as a
trade or business. Rather, Congress was correcting an inequity that
had arisen because gambling is
not a trade or business,
just as, 40 years earlier, Congress had, by enacting the
predecessor to 26 U.S.C. §212, corrected an inequity that became
apparent when this Court held that a full-time investor is not
engaged in a trade or business.
See Higgins v.
Commissioner, 312 U. S. 212
(1941). In neither case did Congress attempt to alter the
then-prevailing definition of trade or business, nor do I think
this Court should do so now to avoid a harsh result in this case.
[
Footnote 2/4] In any event, the
Court should recognize that its holding is a sport that applies
only to a superseded statute, and not to the tax years governed by
the 1982 amendments. Accordingly, I dissent.
[
Footnote 2/1]
All references are to the Code as it stood prior to the 1986
amendments.
[
Footnote 2/2]
Consider two single individuals filing for the tax year ending
December 31, 1986: A has $75,000 in nongambling income, and $75,000
in itemized nongambling deductions; B, a full-time gambler, has
$75,000 in gambling winnings, $75,000 in gambling losses, $75,000
in nongambling income, and $75,000 in itemized nongambling
deductions. A's gross income and adjusted gross income are both
$75,000, and so is his alternative minimum tax base. The
alternative minimum tax assessed on A is 20% of the excess of
$75,000 over $30,000,
see 26 U.S.C. §§55(a), 55(f)(1)(B),
or $9,000. Assuming that full-time gambling is a trade or business,
B has gross income of $150,000, adjusted gross income of $75,000
(because his gambling losses are attributable to a trade or
business), and an alternative minimum tax base of zero (because
gambling losses are deducted from adjusted gross income in
computing the alternative minimum tax base). Thus, if full-time
gambling were treated as a trade or business, B's gambling losses
would shield him against the $9,000 minimum tax that Congress
clearly intended him to pay.
"The Code should not be interpreted to allow [a taxpayer] 'the
practical equivalent of a double deduction,'
Charles Ilfeld Co.
v. Hernandez, 292 U. S. 62,
292 U. S.
68 (1934), absent a clear declaration of intent by
Congress."
United States v. Skelly Oil Co., 394 U.
S. 678,
394 U. S. 684
(1969). There is no such clear declaration of intent accompanying
the 1982 amendments.
[
Footnote 2/3]
The Commissioner had acquiesced in Gentile.
See 1980-2
Cum. Bull. 1, 4, n.39.
[
Footnote 2/4]
While the consequences of accepting the Commissioner's position
in this case may be harsh to the respondent -- which is no doubt
why Congress amended the relevant Code provisions in 1982 -- I find
the Court's characterization of the result as a tax on gambling
losses,
ante at
480 U. S. 35,
somewhat misleading. If gambling is not a trade or business, the
practical effect of the minimum tax on tax preference items is to
reduce the deduction allowed for gambling losses from an amount
equal to 100% of gambling winnings to some lesser percentage of
gambling winnings.