Tax Court: Gambling Only on Their 'Lucky Days' Per Feng Shui Principles Made Couple Professional Gamblers

Thongthepsomphou v. Commissioner, T.C. Summ. Op. 2010-94 (July 19, 2010):

Before petitioner’s decision to become a professional gambler, petitioners had been casual gamblers but they did not wager large amounts. Sometime during 2005 petitioners began to invest heavily in gambling (mainly playing slot machines). Petitioners were born in Vietnam, and their religious and cultural beliefs were derived from their Vietnamese background. They believed in Feng Shui. Because of this belief and other religious and cultural beliefs, they expected that certain days were “lucky days” or days on which their chances of successful gambling increased. They were cognizant that slot machine odds favored the casinos but expected to overcome those odds by attempting to gamble on their “lucky days”. In addition, petitioners would watch other slot machine players; and if they had excessive losses, petitioners believed that taking over machines of losing players provided more opportunity. That was their plan for making a profit. ...

During 2006 petitioners traveled 130 miles each way to Nevada casinos on Friday afternoons and gambled for long hours, sleeping only a few hours per night. They did this every weekend and on legal holidays when they were off work. Petitioners, because of their “lucky day” beliefs, generally limited their slot machine playing to one of the two individuals--the one with the more favorable “lucky day” indicators.

During 2006 petitioners reported combined winnings of $852,230. ... For 2006 petitioners’ losses exceeded their gains by approximately $200,000. On the 2006 return petitioner claimed that he was a professional gambler. ...

Petitioner is from a culture different from that generally extant in the United States, and he drew upon that culture to formulate his business plan. His plan was to use Feng Shui to determine which days were his or his wife’s “lucky days” and have that person bet heavily on those days. He also used a technique of watching other players; and if they left a slot machine after heavy losses, petitioner believed that the machine was due for a payoff. 

There was nothing casual or superficial about petitioner’s plan because he wagered everything he owned in his attempt to win more than he invested. During 2006 petitioners wagered in excess of $1 million dollars, which included more than $850,000 that they had won during that year. Their losses for the year were approximately $200,000, which came from their wages, taxable withdrawals from retirement funds, and loans against property. ...

We find that petitioner’s gambling activity was a trade or business that was pursued in good faith, with regularity, and for the production of income, and that it was not merely recreation or a hobby. ...

Respondent argues that petitioner did not pursue his gambling activity full time. In effect, respondent is arguing that gambling must be the only or predominant source of income. We could find no statute or case precedent that sets forth such requirement. Petitioner pursued his gambling activity beginning on Friday afternoon and late into the night, all day Saturday and late into the night and all day Sunday, with only limited time for rest or sleeping (3 or 4 hours per night), returning to his residence Monday morning. Accordingly, the number of hours devoted to petitioner’s gambling activity approximated the number of hours he worked at his job during the week. ... 

Respondent also argues that petitioners’ approach was not businesslike and that it was irrational. The standard, however, requires only that the profit objective be actual and honest. It would be difficult to find on the record before the Court that petitioner’s approach to making a profit was irrational. For example, if someone’s investment in a stock or a business were based on Feng Shui or some other cultural judgment, that would not per se be “irrational”. Petitioners used their best judgment and successfully tested their business approach. Ultimately, the fact that their approach was unsuccessful does not make it irrational. We accordingly conclude that petitioner was engaged in a trade or business within the meaning of section 162 and that his gambling losses are not itemized deductions reportable on Schedule A.

(Hat Tip: Bob Kamman.)