Commissioner of Internal Revenue v. Groetzinger

PETITIONER: Commissioner of Internal Revenue
RESPONDENT: Groetzinger
LOCATION: United States Tax Court

DOCKET NO.: 85-1226
DECIDED BY: Rehnquist Court (1986-1987)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 480 US 23 (1987)
ARGUED: Dec 08, 1986
DECIDED: Feb 24, 1987

ADVOCATES:
Albert G. Lauber, Jr. - on behalf of the petitioner
Carroll Baymiller - on behalf of the respondent

Facts of the case

Robert P. Groetzinger spent sixty to eighty hours a week placing bets on dog races. He had no other form of employment, and the winnings from these wagers were his only form of income. His net gambling loss for 1978 was $2,032. Groetzinger reported his loss in his tax return but did not compute it in his adjusted gross income. The Internal Revenue Service determined Groetzinger was subjected to the minimum tax since his gambling loss was an item of tax preference according to the Internal Revenue Code of 1964. The Internal Revenue Service sued Groetzinger and the tax court held that he was in the “trade of business” of gambling, which meant that no part of his gambling losses subjected him to a minimum tax. The U.S. Court of Appeals for the District of Columbia Circuit affirmed the judgment.

Question

Does a taxpayer’s gambling activity constitute as a “trade or business” under the Internal Revenue Code of 1964 and therefore allow a deduction of gambling losses to be deducted from gross income instead of constituting a requirement for the minimum tax?

Media for Commissioner of Internal Revenue v. Groetzinger

Audio Transcription for Oral Argument - December 08, 1986 in Commissioner of Internal Revenue v. Groetzinger

Audio Transcription for Opinion Announcement - February 24, 1987 in Commissioner of Internal Revenue v. Groetzinger

William H. Rehnquist:

The opinion of the Court in No. 85-1226, Commissioner of Internal Revenue versus Groetzinger will be announced by Justice Blackmun.

Harry A. Blackmun:

Well this is an income tax case and the issue is whether the taxpayer who devotes his full time to making wagers, gambling or the support of himself in his family, is engaged in a trade or business, as those terms are used in certain sections of the Internal Revenue Code of 1954.

If he is engaged in the trade or business certain tax consequences follow.

If he is not so engaged certain other consequences follow more adverse to him.

The Courts of Appeal have reached different conclusions on this issue and hence we took it to resolve the conflict.

In an opinion filed today, we hold that such a taxpayer who is so engaged is in a trade of business, and hence affirm the judgment of the Seventh Circuit Court of Appeals which had ruled to that effect.

Justice White has filed a dissenting opinion and is joined therein by the the Chief Justice and by Justice Scalia.