## Facts

- Robert Libutti was a high-stakes gambler at a casino in Atlantic City, New Jersey, during tax years 1987–1989.
- He incurred large annual gambling losses: about $4,139,100 (1987), $3,080,050 (1988), and $1,215,900 (1989).
- The casino provided “complimentary” goods and services (“comps”) to induce continued gambling, including automobiles, vacations, jewelry, and entertainment, valued at $443,278 (1987), $974,992 (1988), and $1,126,856 (1989).
- The casino issued Forms 1099-MISC reporting the comps’ value and provided annual statements reflecting net gambling results.
- Libutti reported the comps as gross income and claimed gambling-loss deductions under I.R.C. § 165(d) equal to the comp amounts, effectively offsetting that income.
- For certain automobile comps, Libutti typically sold the cars for cash and used most of the proceeds to gamble at the same casino.
- The IRS determined deficiencies and disallowed the claimed gambling-loss offsets for the comp income, asserting the comps were not gains from wagering transactions under § 165(d).
- The case was submitted on stipulated facts without trial; Libutti conceded the late-filing addition to tax under § 6651(a)(1).

## Issues

1. Whether casino comps included in gross income are “gains from wagering transactions” so that gambling losses may be deducted under I.R.C. § 165(d) up to the value of those comps.
2. Whether additions to tax applied for late filing and other asserted penalties for the years at issue.

## Decision

- The Tax Court held that § 165(d) permitted Libutti to deduct gambling losses up to the value of the comps included in income.
- The court found a sufficient connection between the comps and Libutti’s wagering activity because the comps were provided to induce or reward gambling, not as independent transfers.
- Libutti’s concession left the § 6651(a)(1) late-filing addition to tax in place; the primary contested matter was resolved in his favor on the § 165(d) issue.

## Legal Principles

- Under I.R.C. § 165(d), losses from wagering transactions are allowable only to the extent of gains from such transactions.
- Non-cash economic benefits provided by a casino because of a taxpayer’s wagering activity can constitute “gains from wagering transactions” when the facts show a direct causal relationship between the benefits and gambling.
- The application of § 165(d) turns on the factual nexus between the claimed “gains” and wagering activity, rather than on whether the gain is received in cash or as a traditional jackpot.

## Conclusion

Casino comps that are included in gross income and are provided as an inducement or reward for wagering can be treated as gains from wagering transactions, permitting deduction of gambling losses under § 165(d) up to the comp amounts; late-filing additions to tax remained due based on the taxpayer’s concession.


Libutti v. Comm’r, T.C. Memo. 1996-108 (1996)