John Hom gets caught “all in” by Tax Court

Poker player John Hom’s bluff was called in a U.S. Tax Court decision: John C. Hom v. Comm., T.C. Memo 2013-163 (Tax Ct Memo 2013).  Hom had failed to substantiate his gambling losses so his winnings were unreported.  He represented himself at trial.

Background:   Net gambling winnings are taxable while net gambling losses are not deductible.  I.R.C.  §165(d).  This rule also applies to professional poker players where gambling losses exceed gambling income

Decision:  Hom earned income from various poker tournaments including a $136,695 victory from Grand Sierra Resort & Casino in 2007.  Yet he reported net gambling losses in each year.  The Court held that he could not substantiate his losses or his expenses and charged him with tax on the winnings.  Hom asked the court to let him estimate, but that plan got trumped by the Tax Court because there was no evidence from which to estimate.  The court allowed only a few hundred dollars for entry fees.  Additionally, the court imposed accuracy related penalties pursuant to I.R.C. § 6662 of 20% of the underpayment.

Conclusion:  Representing yourself in the Tax Court can be disastrous.  Gamblers (like all taxpayers) must keep accurate records of their expenses and losses or risk losing the ability to claim the deductions.