Gambling Judge

The world is like a reverse casino. In a casino, if you gamble long enough, you're certainly going to lose. But in the real world, where the only thing you're gambling is, say, your time or your embarrassment, then the more stuff you do, the more you give luck a chance to find you. A Chester County Magisterial District judge diverted nearly $4,000 in campaign donations for personal expenses, using the funds to prop up his “six-figure gambling habit” at casinos in Pennsylvania, Delaware, and along the Jersey Shore, state prosecutors said Wednesday.

  1. Judgement Gambling Hall
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  3. Gambling Judge Jeanine

Over the years, the US Tax Court has reviewed many cases when casino win/loss statements (or their equivalent) were offered into evidence by the taxpayer. None of the Tax Court judges found the documents helpful or persuasive. Lets examine each of these cases in turn.

Mayer v. Commissioner of Internal Revenue

On September 20, 2000, Judge Swift published the Tax Court Memorandum Opinion of Mayer v. Commissioner of Internal Revenue, T.C. Memo. 2000-295, 2000 WL 1349156 (U.S.Tax Ct.), 80 T.C.M. (CCH) 393, T.C.M. (RIA) 2000-295, 2000 RIA TC Memo 2000-295 (U.S. Tax Court 2000).

At trial, petitioner submitted an unsigned letter (a casino win/loss statement) from Caesar’s Palace that indicated the taxpayer had put $898,050 into the slot machines (“Coin-In”) and had estimated slot machine winnings of $837,570 (“Handpaid Jackpots” plus “Coin-Out”), for an estimated net gambling loss of $60,480.

However, in typical fashion, the letter included the following “disclaimer” language:

Please note the tracking system used to arrive at estimated win or loss information provides estimates only and does not constitute an accurate accounting record. * * * This information should be used as a supplement to your own records or information.


Unfortunately for the taxpayer, Judge Swift was not persuaded, and stated:

The Caesar’s Palace letter we regard as highly suspect. It is unsigned. By its terms, it is only an estimate and is to be supplemented by petitioner’s own records. We regard the letter as unreliable evidence and give it no weight.

In summary, the only evidence the taxpayer had to prove his gambling losses was a casino win/loss statement, and the Court held that it was not enough.

Lutz v. Commissioner of Internal Revenue

On April 4, 2002, Judge Thornton published the Tax Court Memorandum Opinion of Lutz v. Commissioner of Internal Revenue, T.C. Memo. 2002-89, 2002 WL 506881 (U.S.Tax Ct.), 83 T.C.M. (CCH) 1446, T.C.M. (RIA) 2002-089, 2002 RIA TC Memo 2002-089 (U.S. Tax Court 2002).

Ronald and Paula Lutz were recreational gamblers that frequently visited casinos in Louisiana and Mississippi. During 1996, they did not keep any records of their gambling activities. Instead they relied upon Trip History Reports (also known as casino win/loss statements) from the various casinos.

Prior to trial, the taxpayers and the IRS agreed upon the amount of gambling losses related to table games. Consequently, Judge Thornton was only called upon to consider the casino win/loss statements as they applied to the slot machine play of the taxpayers.

Unfortunately, the taxpayers own testimony limited the probative value of the casino win/loss statements. At trial, they testified that they considered the Player’s Card a “jinx” when playing the slot machines. In considering these documents, Judge Thornton observed:

The letters contain a number of caveats, however, including that the casino’s tracking system “is designed for marketing purposes only”, that the “information should only be used to support your personal records”, that the casino “cannot be certain that you used your * * * Player’s Club Card every time you visited us, or used it correctly”, and that “Table Game play is not an exact account of actual play; it is strictly an estimate.”

In other words, the “disclaimer” language concerned Judge Thornton greatly, and even the personal appearance at trial by the author of the letters did not relieve him of this concern. Accordingly, Judge Thornton concluded:

[T]hat the letters are unreliable indicators of petitioners’ gambling winnings and losses, failing in particular to reflect either slot machine winnings or losses.

This lack of any credible evidence left the taxpayers with a no gambling losses whatsoever – but Judge Thornton recognized that the taxpayers had to “invest” something in order to receive these amounts. Using a payoff ratio of 20 to 1, Judge Thornton allowed the taxpayers to reduce the amount of their gambling winnings by using a “recovery of capital” rationale.

Hardwick v. Commissioner of Internal Revenue

On December 5, 2007, Judge Wherry published the Tax Court Memorandum Opinion of Hardwick v. Commissioner of Internal Revenue, T.C. Memo. 2007-359, 2007 WL 4257478 (U.S.Tax Ct.), 94 T.C.M. (CCH) 523, T.C.M. (RIA) 2007-359, 2007 RIA TC Memo 2007-359 (U.S. Tax Court 2007).

Judgement Gambling Hall

In this case, Judge Wherry provides the following definition:

A win-loss statement is generated from a Players’ Club card, which is a magnetically encoded card that patrons of a casino may use when playing slot machines. The Players’ Club card enables the casino to track a patron’s gambling activities by date and time, slot machine winnings and losses, and may provide free “comped” room, drink, and food for “high rollers”, or points that may be exchanged by the patron for food, drink, or merchandise.

In this case, the available evidence included IRS Form W2-G’s, a gambling log kept by the taxpayers, casino win/loss statements, bank statements and the taxpayers own testimony at trial.

Judge Wherry begins his analysis by reminding us that taxpayers have the burden of proving their deductions, and Section 165(d) allowing a deduction for wagering losses is no different. Next, Judge Wherry attempts to reconcile the total of all the IRS Form W2-G’s gambling winnings with the evidence offered by the taxpayers. His unsuccessful efforts, lead Judge Wherry to conclude:

Overall, there does not appear to be a correlation between the win-loss statements, petitioners’ Forms W–2G, Mr. Hardwick’s log, and petitioners’ bank account statements. Notably, the win-loss statements reflect that petitioners had gambling winnings totaling $115,142, while the Forms W–2G provide that petitioners had total gambling winnings of $322,500

In other words, Judge Wherry relied upon casino win/loss statements to impeach the credibility of the taxpayers’ other evidence. Once this was accomplished, Judge Wherry then relied upon the amount of gambling losses as determined by the IRS of gambling winnings and gambling losses suggested or agreed upon by the IRS.

Instead of using the casino win/loss statement as a shield for the taxpayers, the IRS and the Court used it as a sword against the taxpayers. This is an important lesson to remember.

Merkin v. Commissioner of Internal Revenue

On June 5, 2008, Special Trial Judge Goldberg published the Tax Court Memorandum Opinion of Merkin v. Commissioner of Internal Revenue, T.C. Memo. 2008-146, 2008 WL 2316491 (U.S.Tax Ct.), 95 T.C.M. (CCH) 1576, T.C.M. (RIA) 2008-146, 2008 RIA TC Memo 2008-146.

During the relevant time of his audit and trial, Dr. Merkin was a self-employed psychiatrist with an office on Park Avenue in New York City. In 1999, Dr. Merkin began to play video poker and spent most of his time at the Mohegan Sun Casino in Uncasvile, Connecticut.

The primary issue in his Tax Court case, was whether or not Dr. Merkin’s gambling activity allowed him to qualify as a professional gambler. Judge Goldberg held that it did not, but instead Dr. Merkin was a recreational gambler.

In conducting his analysis, Judge Goldberg relied upon the U.S. Supreme Court’s analysis in Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23, 35, 107 S.Ct. 980, 94 L.Ed.2d 25 (1987), and the nonexhaustive list of factors in Golanty v. Commissioner, 72 T.C. 411, 426, 1979 WL 3683 (1979).

Judge Goldberg immediately noticed that:

Gambling Judgement

Gambling Judge

Dr. Merkin did not carry on his gambling activity in a businesslike manner. See sec. 1.183-2(b)(1), Income Tax Regs. He did not maintain any receipts, books, or records but instead relied solely upon Mohegan Sun to track all of his playing time, betting history, wins, and losses on his Player’s Club card.


Judge Goldberg then went on to use the information contained in the casino win/loss statements against the taxpayer.

For example, Dr. Merkin testified at trial that as a “professional” gambler he spent 47 out of 52 week-ends engaged in his secondary occupation for a total of at least 1,128 (assuming a minimum of 24 hours per week-end). Unfortunately for Dr. Merkin, his casino win/loss statements documented only 319 hours.

Next, Dr. Merkin argued that as a professional gambler he could demonstrate a profit motive because of all the Player’s Club points that he earned and redeemed. Unfortunately for Dr. Merkin, Judge Goldberg pointed out that:

[W]e note that petitioners failed to report as income the value of any car, airfare, or travel that they acquired from the casino in 2003.

That is certainly a big oops!

The moral of the story is that casino win/loss statements are not the “quick-fix” panacea they appear to be, and that when dealing with the IRS there truly is no substitute for proper recordkeeping.

In decades past, gambling used to be a crime almost everywhere other than Las Vegas, Nevada and Atlantic City, New Jersey. Today, more and more states have legalized various types of gambling, ranging from Indian casinos to poker rooms and horse racing tracks. While some states have legalized certain types of gambling, other types of gambling are still illegal. All states have laws that prohibit at least some type of gambling.

Gambling is sometimes referred to as “gaming.” Depending on the language of state laws, gambling and gaming can mean different things or the two terms can be used synonymously. “Gaming” typically refers to playing games for wagers, such as craps, card games, slot machines, and roulette. “Gambling” may refer to these same types of games, but it also includes other types of activity such as sports wagers.

Gambling is defined in numerous ways, but requires betting or wagering on an outcome that is at least partially based on chance, and done so in order to win something. Illegal gambling is any type of gambling that is specifically prohibited by state law.

Gambling Involves a Bet

While most instances of gambling occur when someone bets money, courts have ruled that gambling can occur whenever a bet is made using anything of value. The item of value is sometimes known as “consideration,” and can encompass anything that has any worth. The amount of the bet doesn't matter, and as long as the property that's at stake in the game is worth some value, the game is gambling.

'Games of Chance'

State gambling laws outlaw games, bets, or wagers that are at least partially dependent on some element of chance. If a game or competition that gives prizes to winners is based on skill, such as a car race or a shooting competition, it is not considered gambling. (However, other laws or restrictions may apply in order to make such competitions legal.)

What differentiates a game of skill from a game of chance is usually determined by which of the two elements has the greatest impact on the outcome. If chance is the biggest factor, the game is one of chance, and making bets or wagers on such games is gambling. Courts have ruled that in games that involve both skill and chance, and where a small group of skilled experts routinely win, this does not necessarily make the game one of skill. In determining what defines a game of skill or chance, courts often judge the game on the average player. If the average player's chances are dominated by chance, the law considers it a game of chance.

A Chance of Winning

If you don't have any chance of winning something of value, you're not gambling. Gambling requires that there is a chance you might win something for your bet, whether it's money, property, or even more chances to play. Further, courts have ruled that you personally don't need to have placed any wager to be convicted of gambling. As long as a group of people have a chance to win something and at least some of them have made a wager, you can be convicted of gambling if you are part of the group and stand a chance at winning.

Prohibition Against Making a Profit

Those who win at gambling have obviously made some money. But aside from the players, what about the businesses who run or operate the gambling game or establishment?

Some state laws specifically allow for 'social gambling' while prohibiting gambling as a business. Business gambling occurs when a person or organization operates a gambling hall that collects fees or takes a portion of the amount the players bet. For example, a person who holds a 'casino night' party and charges an entry fee is engaged in an illegal activity in a state that prohibits business gambling or gambling for profit. So-called “social gambling,” where the players are all equals an no one is collecting fees or making a profit apart from the outcome of the game -- such as in a home poker game -- is often not considered illegal. However, even social gaming is illegal in some states.



While all states criminalize gambling to some extent, they also have vastly different penalties associated with gambling crimes. The type of penalty someone faces after being convicted of illegal gambling largely depends upon the state and the circumstances of case, though sentences typically involve many of the same types of penalties. Gambling can be classified as either a misdemeanor offense or a felony, depending on the situation and state law.

Jail or Prison

Anyone convicted of misdemeanor gambling faces up to a year in a county or local jail, though state laws differ widely. Some states impose small maximum jail sentences for misdemeanor gambling, such as 20 days in jail. Felony convictions, on the other hand, can bring a year or more in prison, and sometimes as much as 10 years, especially where organized, professional gambling is present.


Misdemeanor fines for gambling are quite common, and range from a few hundred dollars up to $1,000 or more. Felony gambling fines can be significant, sometimes as much as $20,000 or more. Fines can be separate from, or in addition to, jail or prison sentences.



Instead of, or in addition to jail time and fines, courts can impose probation sentences for gambling convictions. These probation periods usually last 12 months or more. When a court orders probation it tells you to do (or not do) certain things. For example, the court may order you to stop gambling or to participate in a gambling addiction treatment program. You'll also probably have to report to a probation officer and stay out of trouble with the law. If you don't live up to the probation conditions, the court can revoke your probation and send you to serve the original jail or prison sentence.

Speak to a Lawyer

Gambling Judge Jeanine

Illegal gambling charges can impose significant penalties and can have a serious impact on your life, even if you aren't convicted. Anyone charged with a gambling crime needs to speak to a local criminal defense lawyer at the first opportunity. A good defense attorney will know the gambling laws in your state and have experience with the local prosecutors, judges, and court system. It's always in your best interests to speak to a local criminal defense attorney anytime you are charged with a gambling crime.