Code Sec. 165(d) – Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
Code Sec. 162 – Trade or business expenses. (a) – There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including – (1) a reasonable allowance for salaries or there compensation for personal services actually rendered; (2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and (3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.

In 2001, Andrew Mayo qualified as a professional gambler. Andrew was gambling on horse races and had total wagers of $131,760. During 2001 Andrew had winnings totaling $120,463 and $10,968 of other business expenses such as travel, subscriptions, car and truck expenses, etc. Claiming he was a professional gambler, her reported his income and expenses on Schedule C, showing a net loss of $22,265. Although the IRS agreed that he was a professional gambler, the IRS limited his total deduction to his total winnings of $120,463 thus eliminating the $22,265 loss that was claimed by Andrew. The IRS based its position on Section 165(d), which states that losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. In 1951, the Tax Court in Offutt (16 TC 1214) ruled that Section 165(d) applied to both amounts expensed on wagers as well as other expenses incurred in carrying on the trade or business of gambling. The court recently noted that