holding that a taxpayer must establish that he or she engaged in the activity with the primary purpose and intent of realizing an economic profit independent of tax savings
How later courts described this case
- holding that a taxpayer must establish that he or she engaged in the activity with the primary purpose and intent of realizing an economic profit independent of tax savings
- observing that despite the widespread use of the phrase in the Internal Revenue Code, “the Code has never contained a definition of the words ‘trade or business' for general application, and no regulation has been issued expounding its meaning for all purposes”
- holding that a taxpayer who spent 60-80 hours per week engaged in gambling activities with a view toward earning a living and who had no other employment operated a trade or business
- holding that profit means economic profit, independent of tax savings
Written by the judges who cited it.
Distinguished
Distinguished by Central States, Southeast & Southwest Areas Pension Fund v. Messina Trucking, Inc., 821 F. Supp. 2d 1000 (2011)
The Fund first argues that the Groetzinger test is inapplicable because Messina Products is a limited liability company and thus should be considered a trade or business per se.
The opinion
*37 Justice White,
with whom The Chief Justice and Justice Sc alia join, dissenting.
The 1982 amendments to the Tax Code made clear that gambling is not a trade or business. Under those amendments, the alternative minimum tax base equals adjusted gross income reduced by specified amounts, including gambling losses, and increased by items not relevant here. See 26 U. S. C. §§ 55 (b), 55(e)(1)(A), 165(d) (1982 ed. and Supp. III). 1 If full-time gambling were a trade or business, a full-time gambler’s gambling losses would be “deductions . . . attributable to a trade or business carried on by the taxpayer,” and hence deductible from gross income in computing adjusted gross income, 26 U. S. C. § 62 (1), though only to the extent of gambling winnings, 26 U. S. C. § 165 (d). To again subtract gambling losses (to the extent of gambling winnings) from adjusted gross income when computing the alternative minimum tax base would be to give the full-time gambler a double deduction for alternative minimum tax purposes, which was certainly not Congress’ intent. 2 Thus, when Con *38 gress amended the alternative minimum tax provisions in 1982, it implicitly accepted the teaching of Gentile v. Commissioner, 65 T. C. 1 (1975), that gambling is not a trade or business. 3 Groetzinger would have had no problem under the 1982 amendments.
One could argue, I suppose, that although gambling is not a trade or business under the 1982 amendments, it was in 1978, the tax year at issue here. But there is certainly no indication that Congress intended in 1982 to alter the status of gambling as a trade or business. Rather, Congress was correcting an inequity that had arisen because gambling is not a trade or business, just as 40 years earlier Congress had, by enacting the predecessor to 26 U. S. C. § 212 , corrected an inequity that became apparent when this Court held that a full-time investor is not engaged in a trade or business. See Higgins v. Commissioner, 312 U. S. 212 (1941). In neither case did Congress attempt to alter the then-prevailing definition of trade or business, nor do I think this Court should do so now to avoid a harsh result in this case. 4 In any event, the Court should recognize that its holding is a sport that applies only to a superseded statute and not to the tax years governed by the 1982 amendments. Accordingly, I dissent.
All references are to the Code as it stood prior to the 1986 amendments.
Consider two single individuals filing for the. tax year ending December 31,1986: A has $75,000 in nongambling income, and $75,000 in itemized nongambling deductions; B, a full-time gambler, has $75,000 in gambling winnings, $75,000 in gambling losses, $75,000 in nongambling income, and $75,000 in itemized nongambling deductions. A’s gross income and adjusted gross income are both $75,000, and so is his alternative minimum tax base. The alternative minimum tax assessed on A is 20% of the excess of $75,000 over $30,000, see 26 U. S. C. §§ 55 (a), 55(f)(1)(B), or $9,000. Assuming that full-time gambling is a trade or business, B has gross income of $150,000, adjusted gross income of $75,000 (because his gambling losses are attributable to a trade or business), and an alternative minimum tax base of zero (because gambling losses are deducted from adjusted gross income in computing the alternative minimum tax base). Thus, if full-time gambling were treated as a trade or business, B’s gambling losses would shield him against the $9,000 minimum tax that Congress clearly intended him to pay. “The Code should not be interpreted to allow [a taxpayer] ‘the practical equivalent of a double deduction,’ Charles Ilfeld Co. v. Her *38 nandez, 292 U. S. 62, 68 (1934), absent a clear declaration of intent by Congress.” United States v. Shelly Oil Co., 394 U. S. 678, 684 (1969). There is no such clear declaration of intent accompanying the 1982 amendments.
The Commissioner had acquiesced in Gentile . See 1980-2 Cum. Bull. 1, 4, n. 39.
While the consequences of accepting the Commissioner’s position in this case may be harsh to the respondent — which is no doubt why Congress amended the relevant Code provisions in 1982 — 1 find the Court’s characterization of the result as a tax on gambling losses, ante, at 35, somewhat misleading. If gambling is not a trade or business, the practical effect of the minimum tax on tax preference items is to reduce the deduction allowed for gambling losses from an amount equal to 100% of gambling winnings to some lesser percentage of gambling winnings.