Casino Winners' Resulting Tax Not Discriminatory Against Elderly

A Tax Court judge has ruled that taxes on elderly gamblers' casino winnings are not discriminatory.

The case, Alan A. and Mary E. Sjoberg v. Commissioner of Internal Revenue, involved a Minnesota couple who won $4,000 in a casino jackpot in 2004. They reported the winnings in a handwritten note attached to their tax return, but did not include it in income on the return, nor did they claim offsetting gambling expenses. They also treated only $4,704 of their $20,154 in Social Security benefits as includable in income.

The IRS determined a $660 deficiency in the couple's 2004 federal income tax and a $132 accuracy-related penalty because of the interplay with their Social Security benefits and the Tax Code. The primary issue for decision was whether they could treat their gambling winnings and expenses as business income and expenses or whether the gambling winnings must be treated as “Other” income and the expenses as miscellaneous itemized deductions. The resolution of this issue affected only the taxable amount of their Social Security benefits. Tax Court Judge Stephen Swift found in the IRS's favor.

"Petitioners do not dispute that under the provisions of the Internal Revenue Code respondent's adjustment with respect to the federal income tax treatment of their $4,000 gambling winnings and offsetting expenses is correct, including the effect thereof on the taxability of petitioners' Social Security benefits," he wrote. "Petitioners, however, contend that this treatment of gambling winnings and losses is discriminatory against the elderly and should not be enforced. Petitioners note that today's casinos are like 'Disneyland' to the elderly, offering all sorts of freebies to entice the elderly into casinos to gamble. Petitioners contend that respondent needs to update the tax rules to take into account today's casino operators, casino operations and customers.

"Petitioners complain that it is just 'too easy' for the elderly to gamble and therefore that the tax rules applicable thereto are outdated and should not be enforced - particularly those rules that affect the taxability of Social Security benefits," he added. "Lastly, petitioners allege that some types of gambling winnings are not required to be reported to respondent by the casinos (generally poker and blackjack), and petitioners claim that such differences in the reporting of gambling winnings constitute discrimination. Petitioners' arguments raise policy issues that do not relieve petitioners of their liability for the determined deficiency."