The Tax Court has ruled against an accountant who tried to deduct a portion of his gambling losses from his taxes.
Shiraz Noormohamed Lakhani, a CPA and professional gambler who bet on horse races, deducted his net wagering losses on his tax returns for 2005 through 2009, which the IRS said was in violation of Section 165(d) of the Tax Code. Lakhani argued, however, that he was entitled to deductions for pro rata shares of the track’s “takeout” from the pari-mutuel betting pools, which would wholly or partially offset his disallowed net wagering losses for those years.
Moreover, he argued that Section 165(d) unreasonably discriminates against business losses of professional gamblers and constitutes a violation of their constitutional right to the equal protection of the laws. In addition to disallowing the deductions, the IRS had imposed a Section 6662 accuracy-related penalty.
The Tax Court, in a division opinion issued last week, Lakhani v. Commissioner, 142 T.C. No. 8., held that because “takeout” represents the track’s share of a pari-mutuel betting pool and the expenses discharged from it are obligations imposed on the track, not the bettors, Lakhani was not entitled to deduct a pro rata share of all or any portion of the takeout.
The court further held that the Sec. 165(d) limitation on the deductibility of wagering losses of a professional gambler is not an unconstitutional violation of the Equal Protection Clause of the Constitution. The court sustained the accuracy-related penalty for all the years at issue.