Whitten v. Commissioner
I found this while surfing the net ... it's interesting ... about my dad's run in with the IRS.
Whoever wrote this seems more concerned with weather or not my dad broke the law and less concerned with the IRS spending hundreds of thousands of dollars to collect a few hundred from my dad. Not too mention the countless hours my father had to spend worrying and preparing to defend himself.
Stan may have lost the battle, but he allowed us to see the government at their worst. Again, our federal government spent hundreds of thousands of dollars, most went into the pockets of corrupt lawyers, to collect a few hundred from a responsible, hard working, tax paying American.
Why do people continue to support this kind of government spending? Should rich lawyers be allowed to milk the system like this? I can rest easy, knowing that I’ve done my best to thwart the system; can you?
Game Show Participants
Whitten v. Commissioner
T.C. Memo. 1995-508
[The taxpayers appeared pro se.]
This case is before the Court on the parties' cross-motions for summary judgment. The issue for decision concerns the proper characterization of expenses incurred by petition-er Stanley B. Whitten in attending and participating in the television game show "Wheel of Fortune."
. . .
Background
Stanley B. and Rose M. Whitten (petitioners) are husband and wife who filed a joint Federal income tax return for1991. At the time that their petition was filed in this case, petitioners resided in Northbrook, Illinois. Stanley B. Whitten (petitioner) is a criminal investiga tor with the United States Securities and Exchange Commission . He is also a nationally recognized cruciverbalist who has constructed crossword puzzles that have appeared in newspapers and magazines throughout the United States, in including the Chicago Tribune, the New York Times, and the Washington Post.
In early 1990, petitioner learned that the staff of the Wheel of Fortune" television game show was coming to Chicago, Illinois, to interview and select contestants to appear on the program. Petitioner applied for and received an invitation to compete to be a contestant. The selection process began with a written examination that served to eliminate many of the applicants from consideration, followed by a personal interview and a mock session of the game. At the conclusion of this process, petitioner was one of approximately 30 applicants who were selected to appear on the program.
In mid-January 1991, petitioner was contacted by the "Wheel of Fortune" game show and arrangements were made for petitioner to take part in the taping of the program to be conducted in Los Angeles, California, on February 8, 1991. In anticipation of his appearance on the program, petitioner watched "Wheel of Fortune" nearly every night and acquired both a computerized and manual version of the game with which to practice.
Because the producers of the "Wheel of Fortune" program film 8 shows in one day, contestants are required to bring additional changes of clothing so that the winner of one show can reappear on the next show in a different outfit and thereby simulate different days. Contestants who win three games in a row are not permitted to return for a fourth show.
"Wheel of Fortune" contestants are required to sign a document entitled "CONTESTANT RELEASE FORM" which states in part:
I have not paid or accepted any money or other
valuable consideration (including a division of
prizes) in connection with my appearance on the
Program, or authorized anyone else to do so. I am
aware that payment or acceptance of or agreement to
pay or accept any money or valuable consideration
for the appearance of any person or the mention of
anything on the Program without disclosure to NBC
prior to broadcast is a federal offense punishable
by fine and/or imprisonment. I agree that if anyone
tries to induce me to do any such act, I shall
immediately notify a NBC Program Practices repre-
sentative.
The release form further states that any travel undertaken by a contestant in connection with the contestant's appearance on the program shall be at the contestant's sole risk and expense.
Petitioner, as well as his wife and three of his children, flew to Los Angeles on February 7, 1991, and petitioner appeared for the taping of "Wheel of Fortune" as scheduled. Petitioner won three consecutive games and was awarded cash prizes in the total amount of $14,850 and a 1991 Chevrolet Geo Tracker automobile. The "Wheel of Fortune" programs that petitioner appeared on were televised nationally on February 18, 19, and 20, 1991.
As indicated, petitioners filed a joint 1991 Federal income tax return (Form 1040). Petitioner's winnings from the "Wheel of Fortune" game show were reported as "other income" on line 22 of Form 1040 in the amount of $19,830. The $19,830 entry represents the sum of the value of the GEO Tracker and petitioner's cash winnings of $14,850, reduced by the expenses that petitioner and his family purportedly incurred, namely $1,820, for transportation, meals, and lodging in order to participate as a contestant on the show in Los Angeles. Petitioners' reporting position is premised on the theory that the foregoing expenses represent "gambling losses" that may be offset directly against petitioner's "gambling winnings" from the program.
Respondent determined a deficiency in the amount of $582 in petitioners' Federal income tax for 1991. Specifically, respondent determined that petitioners failed to report $1,820 in income from petitioner's winnings on the "Wheel of Fortune" game show. In respondent's view, the $1,820 in expenses that petitioner purportedly incurred in attending and participating in the game show are properly characterized either as nondeductible personal expenses under §262 or as miscellaneous itemized deductions that may only be deducted subject to the 2-percent floor prescribed by §67(b).
. . .
During the course of the hearing in Washington, D.C., petitioner conceded that he is not in the trade or business of either gambling or appearing as a contestant on television game shows. In addition, petitioner stated that his theory of the case rests solely on §165.
Discussion
. . .
The parties have devoted a substantial amount of time and effort debating the issue of whether a contestant's appearance on the "Wheel of Fortune" game show constitutes wagering transaction governed by the provisions of §165(d). In our opinion it does not. However, we need not definitively decide this because such issue begs the question regarding the proper characterization of the expenses incurred by petitioner in attending and participating in the "Wheel of Fortune" game show. Consequently, we will focus our attention on the more pertinent issue of whether the expenses in dispute can be characterized as wagering losses within the meaning of 165(d).
Section 165(d) was originally codified as 23(g) of the Revenue Act of 1934, ... Notwithstanding the long history of the section, the term "wagering losses" is not defined in either the Internal Revenue Code or the regulations. Nor is the term defined in the legislative history underlying §165(d).
It is within this relative vacuum of authority that petitioners rely on Kozma v. Commissioner, T.C. Memo.1986-177, as support for their position that the expenses disputed herein constitute wagering losses under § 165(d). As explained below, petitioners' reliance on Kozma is misplaced.
In Kozma the taxpayer, an individual engaged in the trade or business of gambling, enjoyed gross gambling winnings (gross receipts) of $9,750 and $15,191 for 1980 and 1981, respectively. However, after combining the amounts that he paid for wagering tickets with business expenses for transportation, depreciation, meals and lodging, admission fees, and office supplies, the taxpayer reported net losses in respect of his gambling business for both 1980 and 1981. The Commissioner issued a notice of deficiency disallowing the losses claimed by the taxpayer on the ground that gambling losses are allowable only to the extent of gambling winnings under §165(d).
In proceedings before this Court, the taxpayer argued that the expenses incurred for transportation, depreciation, meals and lodging, admission fees, and office supplies constitute business expenses under §162(a), rather than wagering losses under §165(d), and that such expenses are deductible by virtue of §162(a) notwithstanding the limitation imposed by §165(d).
Focusing on the tension between sections 162(a) and 165(d), we held that the Commissioner was correct in disallowing the taxpayer's business expenses to the extent that those expenses generated an overall loss from the taxpayer's gambling business. . . . Unlike the taxpayer in Kozma, petitioner admits that he is not in the trade or business of gambling and that he did not incur losses or expenses in excess of his "wagering winnings." In this light, it is evident that ozma can be distinguished on its facts from the present case.
Nor are we persuaded that the legal holding in Kozma is controlling in the present case. Rather, Kozma stands for the narrow proposition that, in the case of a professional gambler, the limitation imposed under §165(d) limiting wagering losses to wagering winnings overrides the deduction otherwise allowable under §162(a) for ordinary and necessary business expenses. . . . Petitioners apparently believe that Kozma, together with the cases cited therein, stand for the proposition that all expenses related to a wagering activity are properly characterized as wagering losses under §165(d). However, we do not glean from those cases any intention to eliminate the distinction between wagering losses, i.e., the amount of wagers or bets lost on wagering transactions, and expenses related thereto, e.g., expenses for transportation, meals, and lodging incurred to engage in wagering transactions. . . .
Consistent with the foregoing, we conclude that wagering losses must be accounted for and reported separately from the expenses incurred by the taxpayer in order to engage in the underlying wagering transaction. In applying this rule to the facts presented herein, we hold that the expenses incurred by petitioner in order to attend and participate in the "Wheel of Fortune" game show are at best expenses, deductible as a miscellaneous itemized deduction under 67, rather than wagering losses under §165(d). In so holding, we reject petitioners' contention that the expenses in issue are tantamount to a bet or wager. Unlike a wager or bet, petitioner incurred the expenses in question in exchange for specific goods and services, such as transportation, meals, and lodging. Further, we doubt that Congress ever intended to allow casual gamblers to treat expenses for transportation, meals, and lodging as anything other than either miscellaneous itemized deductions or nondeductible personal expenses. Consequently, we shall deny petitioners' motion for Summary Judgment and grant respondent's cross motion.
In order to reflect the foregoing,
An order denying petitioners' Motion for Summary Judgment . . . and granting respondent's Motion for Summary Judgment will be entered.
QUESTIONS
1. Is there a connection between Stanley Whitten's success as a cruciverbalist and his success on Wheel of Fortune?
2. Assuming that Whitten was paid for crossword puzzles that were published, was he entitled to deduct any expenses incurred in producing those puzzles? If so, under what Code
section?
3. Was Whitten misguided in his concession that the expenses incurred in appearing on Wheel of Fortune were not deductible as trade or business expenses?
Whoever wrote this seems more concerned with weather or not my dad broke the law and less concerned with the IRS spending hundreds of thousands of dollars to collect a few hundred from my dad. Not too mention the countless hours my father had to spend worrying and preparing to defend himself.
Stan may have lost the battle, but he allowed us to see the government at their worst. Again, our federal government spent hundreds of thousands of dollars, most went into the pockets of corrupt lawyers, to collect a few hundred from a responsible, hard working, tax paying American.
Why do people continue to support this kind of government spending? Should rich lawyers be allowed to milk the system like this? I can rest easy, knowing that I’ve done my best to thwart the system; can you?
Game Show Participants
Whitten v. Commissioner
T.C. Memo. 1995-508
[The taxpayers appeared pro se.]
This case is before the Court on the parties' cross-motions for summary judgment. The issue for decision concerns the proper characterization of expenses incurred by petition-er Stanley B. Whitten in attending and participating in the television game show "Wheel of Fortune."
. . .
Background
Stanley B. and Rose M. Whitten (petitioners) are husband and wife who filed a joint Federal income tax return for1991. At the time that their petition was filed in this case, petitioners resided in Northbrook, Illinois. Stanley B. Whitten (petitioner) is a criminal investiga tor with the United States Securities and Exchange Commission . He is also a nationally recognized cruciverbalist who has constructed crossword puzzles that have appeared in newspapers and magazines throughout the United States, in including the Chicago Tribune, the New York Times, and the Washington Post.
In early 1990, petitioner learned that the staff of the Wheel of Fortune" television game show was coming to Chicago, Illinois, to interview and select contestants to appear on the program. Petitioner applied for and received an invitation to compete to be a contestant. The selection process began with a written examination that served to eliminate many of the applicants from consideration, followed by a personal interview and a mock session of the game. At the conclusion of this process, petitioner was one of approximately 30 applicants who were selected to appear on the program.
In mid-January 1991, petitioner was contacted by the "Wheel of Fortune" game show and arrangements were made for petitioner to take part in the taping of the program to be conducted in Los Angeles, California, on February 8, 1991. In anticipation of his appearance on the program, petitioner watched "Wheel of Fortune" nearly every night and acquired both a computerized and manual version of the game with which to practice.
Because the producers of the "Wheel of Fortune" program film 8 shows in one day, contestants are required to bring additional changes of clothing so that the winner of one show can reappear on the next show in a different outfit and thereby simulate different days. Contestants who win three games in a row are not permitted to return for a fourth show.
"Wheel of Fortune" contestants are required to sign a document entitled "CONTESTANT RELEASE FORM" which states in part:
I have not paid or accepted any money or other
valuable consideration (including a division of
prizes) in connection with my appearance on the
Program, or authorized anyone else to do so. I am
aware that payment or acceptance of or agreement to
pay or accept any money or valuable consideration
for the appearance of any person or the mention of
anything on the Program without disclosure to NBC
prior to broadcast is a federal offense punishable
by fine and/or imprisonment. I agree that if anyone
tries to induce me to do any such act, I shall
immediately notify a NBC Program Practices repre-
sentative.
The release form further states that any travel undertaken by a contestant in connection with the contestant's appearance on the program shall be at the contestant's sole risk and expense.
Petitioner, as well as his wife and three of his children, flew to Los Angeles on February 7, 1991, and petitioner appeared for the taping of "Wheel of Fortune" as scheduled. Petitioner won three consecutive games and was awarded cash prizes in the total amount of $14,850 and a 1991 Chevrolet Geo Tracker automobile. The "Wheel of Fortune" programs that petitioner appeared on were televised nationally on February 18, 19, and 20, 1991.
As indicated, petitioners filed a joint 1991 Federal income tax return (Form 1040). Petitioner's winnings from the "Wheel of Fortune" game show were reported as "other income" on line 22 of Form 1040 in the amount of $19,830. The $19,830 entry represents the sum of the value of the GEO Tracker and petitioner's cash winnings of $14,850, reduced by the expenses that petitioner and his family purportedly incurred, namely $1,820, for transportation, meals, and lodging in order to participate as a contestant on the show in Los Angeles. Petitioners' reporting position is premised on the theory that the foregoing expenses represent "gambling losses" that may be offset directly against petitioner's "gambling winnings" from the program.
Respondent determined a deficiency in the amount of $582 in petitioners' Federal income tax for 1991. Specifically, respondent determined that petitioners failed to report $1,820 in income from petitioner's winnings on the "Wheel of Fortune" game show. In respondent's view, the $1,820 in expenses that petitioner purportedly incurred in attending and participating in the game show are properly characterized either as nondeductible personal expenses under §262 or as miscellaneous itemized deductions that may only be deducted subject to the 2-percent floor prescribed by §67(b).
. . .
During the course of the hearing in Washington, D.C., petitioner conceded that he is not in the trade or business of either gambling or appearing as a contestant on television game shows. In addition, petitioner stated that his theory of the case rests solely on §165.
Discussion
. . .
The parties have devoted a substantial amount of time and effort debating the issue of whether a contestant's appearance on the "Wheel of Fortune" game show constitutes wagering transaction governed by the provisions of §165(d). In our opinion it does not. However, we need not definitively decide this because such issue begs the question regarding the proper characterization of the expenses incurred by petitioner in attending and participating in the "Wheel of Fortune" game show. Consequently, we will focus our attention on the more pertinent issue of whether the expenses in dispute can be characterized as wagering losses within the meaning of 165(d).
Section 165(d) was originally codified as 23(g) of the Revenue Act of 1934, ... Notwithstanding the long history of the section, the term "wagering losses" is not defined in either the Internal Revenue Code or the regulations. Nor is the term defined in the legislative history underlying §165(d).
It is within this relative vacuum of authority that petitioners rely on Kozma v. Commissioner, T.C. Memo.1986-177, as support for their position that the expenses disputed herein constitute wagering losses under § 165(d). As explained below, petitioners' reliance on Kozma is misplaced.
In Kozma the taxpayer, an individual engaged in the trade or business of gambling, enjoyed gross gambling winnings (gross receipts) of $9,750 and $15,191 for 1980 and 1981, respectively. However, after combining the amounts that he paid for wagering tickets with business expenses for transportation, depreciation, meals and lodging, admission fees, and office supplies, the taxpayer reported net losses in respect of his gambling business for both 1980 and 1981. The Commissioner issued a notice of deficiency disallowing the losses claimed by the taxpayer on the ground that gambling losses are allowable only to the extent of gambling winnings under §165(d).
In proceedings before this Court, the taxpayer argued that the expenses incurred for transportation, depreciation, meals and lodging, admission fees, and office supplies constitute business expenses under §162(a), rather than wagering losses under §165(d), and that such expenses are deductible by virtue of §162(a) notwithstanding the limitation imposed by §165(d).
Focusing on the tension between sections 162(a) and 165(d), we held that the Commissioner was correct in disallowing the taxpayer's business expenses to the extent that those expenses generated an overall loss from the taxpayer's gambling business. . . . Unlike the taxpayer in Kozma, petitioner admits that he is not in the trade or business of gambling and that he did not incur losses or expenses in excess of his "wagering winnings." In this light, it is evident that ozma can be distinguished on its facts from the present case.
Nor are we persuaded that the legal holding in Kozma is controlling in the present case. Rather, Kozma stands for the narrow proposition that, in the case of a professional gambler, the limitation imposed under §165(d) limiting wagering losses to wagering winnings overrides the deduction otherwise allowable under §162(a) for ordinary and necessary business expenses. . . . Petitioners apparently believe that Kozma, together with the cases cited therein, stand for the proposition that all expenses related to a wagering activity are properly characterized as wagering losses under §165(d). However, we do not glean from those cases any intention to eliminate the distinction between wagering losses, i.e., the amount of wagers or bets lost on wagering transactions, and expenses related thereto, e.g., expenses for transportation, meals, and lodging incurred to engage in wagering transactions. . . .
Consistent with the foregoing, we conclude that wagering losses must be accounted for and reported separately from the expenses incurred by the taxpayer in order to engage in the underlying wagering transaction. In applying this rule to the facts presented herein, we hold that the expenses incurred by petitioner in order to attend and participate in the "Wheel of Fortune" game show are at best expenses, deductible as a miscellaneous itemized deduction under 67, rather than wagering losses under §165(d). In so holding, we reject petitioners' contention that the expenses in issue are tantamount to a bet or wager. Unlike a wager or bet, petitioner incurred the expenses in question in exchange for specific goods and services, such as transportation, meals, and lodging. Further, we doubt that Congress ever intended to allow casual gamblers to treat expenses for transportation, meals, and lodging as anything other than either miscellaneous itemized deductions or nondeductible personal expenses. Consequently, we shall deny petitioners' motion for Summary Judgment and grant respondent's cross motion.
In order to reflect the foregoing,
An order denying petitioners' Motion for Summary Judgment . . . and granting respondent's Motion for Summary Judgment will be entered.
QUESTIONS
1. Is there a connection between Stanley Whitten's success as a cruciverbalist and his success on Wheel of Fortune?
2. Assuming that Whitten was paid for crossword puzzles that were published, was he entitled to deduct any expenses incurred in producing those puzzles? If so, under what Code
section?
3. Was Whitten misguided in his concession that the expenses incurred in appearing on Wheel of Fortune were not deductible as trade or business expenses?