Marilyn Odendahl for www.theindianalawyer.com
In a case of first impression, a northwest Indiana man failed to convince the Indiana Tax Court that his blackjack playing was how he earned his living and, therefore, he should be eligible for certain gambling-related deductions from his state income taxes.
Nick Popovich began his career as a professional blackjack player in 2002. He had long played the game and spent several months practicing at home and learning new gambling techniques. Even so, he lost more than $200,000 that first year and lost another $450,000 in 2003. However, in 2004, his luck changed and his net winnings totaled $44,200.
In filing his taxes for 2004, Popovich reported his gambling profit but then carried forward a net operating loss from his 2003 gaming activities. He subsequently calculated his 2004 Indiana adjusted gross income tax (AGIT) liability to be zero.
The Indiana Department of State Revenue then audited Popovich and determined he was not a professional gambler during the 2004 tax year.
Popovich appealed but the Tax Court affirmed Friday in Nick Popovich v. Indiana Department of State Revenue, 49T10-1010-TA-00053.
The tax court established a two-part test to determine whether Popovich was a professional gambler.
First, the court relied on Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23 (1987), in figuring out if Popovich’s time at the blackjack table was a “continuous and regular” activity. In rejecting his arguments to the contrary, the court pointed to inconsistencies in Popovich’s own recordkeeping as well as large amount of money from unexplained sources flowing in and out of his checking account.
“Having weighed the credibility and reliability of the evidence regarding Popovich’s time spent gambling and the source of his livelihood during 2004, the Court is unconvinced that Popovich’s gambling was regular and continuous,” Judge Martha Wentworth wrote. “At best, the evidence in this case shows that Popovich gambled no more than five days per month, which, based on this fact alone, suggests that his gambling was sporadic, not continuous and regular.”
Second, the court turned to nine factors from federal Treasury Regulations to assist in discovering whether Popovich engaged in gambling to make a profit.
While the court found Popovich did develop an expertise about blackjack and that he believed he could earn a profit by gambling, it found the bulk of the factors favoring the revenue department. In particular, the court held he was not gambling to earn an income, he did not engage in gambling regularly and he long considered blackjack an enjoyable activity.