Mayo v. Commissioner of Internal Revenue
Facts: Ronald Andrew Mayo says he was in the trade or business of gambling back in the year of 2001. He reported the results of his gambling business, including gross receipts of $120,463 and expenses of $142,728; this consisted of $131,760 for wagers placed within that year and $10,968 in expenses incurred in direct relation to his gambling business. Mayo deducted the excess of expenses from the Schedule C over gross receipts, a total of $22,265, as a business loss against his income.
Issue: Can Ronald Andrew Mayo deduct his gambling losses as a business deduction?
Authorities: IRC Sec. 165 (d) IRC Sec. 6662 (a) (b) (2)
Offutt v. Commissioner
16 TC 1214 CP2000
Commissioner v. Groetzinger 480 U.S. 23 (1987)

Conclusion: Respondent determined that Mayo is liable for an accuracy-related penalty under section 6662 (a) and (b) (2) for a substantial understatement of income tax on their 2001 federal income tax return. Respondent's determination was premised upon the disallowance of both the $11,297 excess of wagering expenses over gross receipts from wagering and the $10,968 in business expenses not part of the cost of wagers.

Analysis: Ronald Andrew Mayo was not in the trade or business of gambling and was therefore required to claim any gambling losses, but only to the extent of gambling gains, as itemized deductions. Respondent allowed Schedule C expenses of only $120,463, the amount of gross receipts reported from gambling, thereby eliminating the $22,265 net loss from gambling that Mayo had claimed as a deduction from gross income. The deductions from gambling to $120,463 disallowed both the excess of the $131,760 in wagering expenses over the $120,463 in gross receipts from gambling ($11,297) and business expenses claimed in connection with the conduct of the