TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Sunday, May 22, 2011

No $120k Internet Poker Loss Deduction for Lawyer Denied BigLaw Partnership

Cohen Canadian Lawyer, Tax Court Nixes Lawyer’s Attempt to Write Off Internet Poker Losses:

A Toronto lawyer who left Bay Street in 2006 in an abortive attempt to make it as a professional Internet poker player has failed in a bid to write off the $120,000 loss he ran up that year before slinking back to practice. Steven A. Cohen claimed he made the career switch in December 2005 after Goodmans LLP deferred a decision on elevating him to partner for a second consecutive year.

His master plan envisioned a $150,000 annual profit by targeting weak, inexperienced players in small-stakes games, before elevating in the long-term to higher stakes for a $500,000 annual return, the same level he would have made as partner at Goodmans, according to the ruling in Cohen v. The Queen. ...

But things didn’t quite go as planned, and his $80,000 in winnings for 2006 were dwarfed by the $200,000 he ploughed into the venture. ... In the May 12 ruling, Tax Court of Canada Justice Frank Pizzitelli decided Cohen’s actions did not suggest the poker venture was conducted in a business-like way, and refused Cohen’s appeal of his tax assessment which denied his bid to deduct his $120,000 losses. ... The decision also delivered a damning verdict on Cohen’s poker skills.

(Hat Tip: Francine Lipman.)

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The Canadian Court disallowed the deduction because "Cohen’s actions did not suggest the poker venture was conducted in a business-like way."

If the Court decides what's business-like and what's not for deductions, then it could disallow deductions for most of the stupid decisions and transactions by corporations and small businesses. The basis should be whether or not there was "intent to make a profit" -- not if the steps to achieve that were just plain dumb or careless. But, that's Canada, where the government has never made a stupid decision - in its eyes.

Posted by: Woody | May 22, 2011 8:19:26 AM

For "intent to make a profit" to be a workable standard, a court must consider circumstantial evidence. Otherwise the test boils down to no more than the taxpayer's expression of subjective intent to make a profit. Apparently that's all Cohen had, and the objective circumstantial evidence contradicted him.

Posted by: Jake | May 22, 2011 2:32:55 PM

Cohen was only guilty of being an idiot. Who would quit their job at a law firm and go into gambling unless he was convinced in his mind that he could do better in that business? It's not like he was entering dog shows and trying to write off that hobby as a business. But, that's Canada. In this country, he would have qualified for a stimulus package.

Posted by: Woody | May 22, 2011 4:07:30 PM