And that wasn’t the only lesson the Tax Court recently taught taxpayer Zierdt (Douglas Zierdt v. Commissioner, TC Summary Opinion 2014-78).
This taxpayer worked part time as a stock broker, while also considering himself a professional gambler. In preparing his own returns, he combined (i.e.-netted) his gambling losses) against his income from stock brokering. The Court noted that “He did not file separate Schedules C with his returns, and instead he claimed deductions for gambling expenses on Schedules C that identified the business activity as ‘stockbroker’. Such inaccurate and misleading income tax reporting does not reflect a reasonable attempt to comply with the Code.”
Moreover, the Court found that the gambling activity was not a true “trade or business” at all, but a hobby instead and thus disallowed the gambling losses. The facts that the taxpayer had net gambling losses for each of the years 2006 through 2010, combined with the fact that he did not maintain complete and accurate records were the main reasons for the Court’s conclusions.
And by the way, the bad reporting and lack of documentation led the Court to the additional conclusion that no “reasonable cause” existed to excuse Mr. Zierdt from imposition of the accuracy-related penalties for several of the years.