## Facts

- Mark D. Collins worked for New York City Off-Track Betting (OTB) as a ticket vendor and computer operator; OTB was cash-only and prohibited employee betting.
- On July 17, 1988, Collins used an OTB terminal to issue betting tickets to himself without paying, totaling $80,280.
- After the races, Collins held losing tickets totaling $38,105 and winning tickets totaling $42,175.
- Collins reported none of the ticket amounts on his 1988 federal income tax return.
- Collins turned himself in; he returned the winning tickets (or proceeds) to OTB, pleaded guilty to grand larceny, and did not reimburse OTB for the losing-ticket amount.
- The IRS issued a notice of deficiency treating the entire $80,280 as unreported gross income from theft.
- The Tax Court sustained the deficiency; Collins appealed.

## Issues

1. Whether Collins realized gross income in 1988 equal to the full $80,280 face amount of the betting tickets obtained through theft.
2. Whether Collins’s gambling losses and partial restitution reduced the amount includible in gross income for the year of misappropriation.

## Decision

- The Second Circuit affirmed the Tax Court.
- Collins had gross income of $80,280 in 1988 when he misappropriated OTB funds by issuing himself tickets without payment.
- Subsequent wagering losses and later restoration of the winning-ticket proceeds did not reduce the 1988 gross income amount.

## Legal Principles

- Illegal gains are includible in gross income in the year the taxpayer obtains dominion and control over the funds, even if the taxpayer has an obligation to repay.
- The measure of income from theft is the amount over which the taxpayer obtained control at the time of misappropriation, not the taxpayer’s later net profit or the success of subsequent expenditures.
- Later restitution does not retroactively reduce income in the year of receipt; it may affect tax consequences in later years.
- Spending stolen funds on wagers does not reduce gross income from the theft; gambling losses are governed by separate statutory limits and do not recharacterize the amount taken.

## Conclusion

The court held that a taxpayer who steals funds and exercises dominion over them must include the full amount taken in gross income for that year, regardless of later gambling losses or partial restitution to the victim.


Collins v. Commissioner, 3 F.3d 625 (2d Cir. 1993)