In Mayo v. Commissioner, 136 T.C. 81 (2011) (available in BNA), the plaintiff was in the trade or business of gambling (betting on race horses). He lost about $10,000 and in the same year claimed about $10,000 of business expenses. He deducted all of it on his return, claiming that the both the gambling losses and the gambling expenses were deductible under the regular provision for business expenses, section 162(a): in other words, he claimed that the limitation allowing gambling losses only to the extent of gambling wins in section 165(d) did not apply to gamblers in the business of gambling. The Service challenged his positions, asserting its long-held view that section 165(d) applied to both the expenses and gambling losses.
The tax court disagreed with both parties, deciding to no longer follow Offut v. Commissioner, 16 T.C. 1214 (1951) (also in BNA). The Service, it said, was correct that section 165(d) restricts gambling losses to winnings. But Mayo was correct that business expenses of gambling can be deducted like other business expenses under section 162(a) and are not covered by section 165(d).
The Service has acquiesced in the decision, and will no longer challenge business expense deductions for gamblers in the business of gambling. Action on Decision 2011-06. The notice will appear in Internal Revenue Bulletin 2012-3 on Jan. 17.