480 U.S. 23
107 S.Ct. 980
94 L.Ed.2d 25
COMMISSIONER OF INTERNAL REVENUE, Petitioner
Robert P. GROETZINGER.
Argued Dec. 8, 1986.
Decided Feb. 24, 1987.
Commissioner v. Groetzinger, 480 U.S. 23 (1987) is a decision of the Supreme Court of the United States, which addressed the issue of what qualifies as being either a trade or business under Section 162(a) of the Internal Revenue Code. Under the terms of § 162(a), tax deductions should be granted “for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business for tax purposes.” However, the term “trade or Business” is not defined anywhere in the Internal Revenue Code. The case of Commissioner v. Groetzingerexamined what is required for an activity to rise to the level of a “trade or business” for tax purposes. The particular question presented in this case was whether a full-time gambler who made wagers for his own account was engaged in a “trade or business.”
In the absence of an all-purpose definition by statute or regulation, the Court decided not to create a specific test to determine what qualifies as a trade or business. Instead, the Court found that such a decision requires an examination of the facts in each case. As for gambling in particular, the Court concluded that “if one’s gambling activity is pursued full time, in good faith, and with regularity, to the production of income for livelihood, and is not a mere hobby” it is a trade or business within the meaning of §162(a) of the Internal Revenue Code.
Behind the Holding
Historically, Congress has distinguished between business and trade and transactions that a party might have entered into for purposes of profit but that are not necessarily related to trade or business. The Court agreed that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for profit or income. The taxpayer in this case spent 60 to 80 hours a week doing gambling-related activities. He had no other type of employment. In the tax year at issue in the case, the taxpayer had earned $70,000 in gambling winnings. The Court found that the constant and large scale effort the taxpayer made towards gambling qualified it being a trade or business. It was more than just a hobby or amusement; it was his livelihood. Under the basic concepts of fairness, the Court held that the ordinary and necessary expenses paid or incurred during the taxable year in carrying out the taxpayer’s gambling business could be deducted under the terms of §162(a).
For most of 1978, respondent devoted 60 to 80 hours per week to parimutuel wagering on dog races with a view to earning a living from such activity, had no other employment, and gambled solely for his own account. His efforts generated gross winnings of $70,000 on bets of $72,032, for a net gambling loss for the year of $2,032. Although he reported this loss on his 1978 tax return, he did not utilize it in computing his adjusted gross income or claim it as a deduction. Upon audit, the Commissioner of Internal Revenue determined that, under the Internal Revenue Code of 1954 (Code) as it existed in 1978, respondent was subject to a minimum tax because part of the gambling loss deduction to which he was entitled was an “ite[m] of tax preference.” Under the Code, such items could be lessened by certain deductions that were “attributable to a trade or business carried on by the taxpayer.” In redetermining respondent’s tax deficiency, the Tax Court held that he was in the “trade or business” of gambling, so that no part of his gambling losses was an item of tax preference subjecting him to a minimum tax for 1978. The Court of Appeals affirmed.
Held: A full-time gambler who makes wagers solely for his own account is engaged in a “trade or business” within the meaning of Code §§ 162(a) and 62(1). Pp.27-36
771 F.2d 269 (CA7 1985), affirmed.
BLACKMUN, J., delivered the opinion of the Court, in which BRENNAN, MARSHALL, POWELL, STEVENS, and O’CONNOR, JJ., joined. WHITE, J., filed a dissenting opinion, in which REHNQUIST, C.J., and SCALIA, J., joined, post, p. —.
Albert G. Lauber, Jr., Washington, D.C., for petitioner.
Carroll Baymiller, Peoria, Ill., for respondent.