The growth of legalized casino gambling in the United States will no doubt spur an increase in the number of gamblers who are required to report their respective winnings annually for federal income tax purposes. Yet, the primary tax concern of many gamblers is “how to deduct losses.” Basically, all gamblers are impacted by I.R.C. § 165(d), which limits gambling loss deductions to gambling gains and effectively disallows carry‐backs or carry‐forwards of excess gambling losses. But like Joanne Woodward's character in the film “The Three Faces of Eve,” gambling loss deductions possess multiple personalities. If the gambler is a “professional,” his losses are broadly defined and subject to I.R.C. § 165(d) ceiling limit. Conversely, a “casual” gambler's losses are narrowly defined and subject to even more code‐imposed ceiling limits. Then again, a “commercial gaming establishment” is apparently not subject these limitations. According to the Commissioner, a professional gambler's “wagering losses” include not only the money wagered, but also many other related expenses incurred in order to enter into a wagering transaction. This can logically occur only when these expenses are capitalized into the wager or bet. However, such capitalization is not currently required under either I.R.C. § 263 or the Indopco decision. In fact, casual gamblers are precluded from capitalizing such related expenses into their wagers. Yet, this prohibition provides no tax benefit to casual gamblers. For, the Commissioner has, on scant authority, disallowed both I.R.C. §§ 212(1) and 183(b) deductions for these related expenses.

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