Essay on Gambling and American Opportunity Tax

In Tschetschot v. Commissioner, T.C. Memo. 2007-38, the taxpayer won more than $11,000 in nine "tournament poker" games. Because of expenses, however, she claimed a net loss of nearly $30,000 on her Schedule C. The government contended that the taxpayer's deductions were limited to her $11,000 of winnings under § 165(d). (The government conceded that the taxpayer was a "professional gambler" and thus could deduct her expenses, as limited by § 165(d), on her Schedule C. Non-professional gamblers can deduct only to the extent that they itemize deductions on Schedule A.) The Tax Court, agreeing with the government, rejected the taxpayer's argument that tournament poker should be considered an entertainment activity (to which § 165(d) does not apply), like other professional sporting tournaments, rather than a wagering activity. "Betting is so intrinsic to poker," the court said, that playing it in a tournament "does not change the basic nature of the game as a wagering activity."
A recent Tax Court case provides what some might say is a generous interpretation of whether two or more "undertakings" constitute a single "activity" under Reg. § 1.183-1(d)(1). The taxpayer in Topping v. Commissioner, T.C. Memo. 2007-92, was an equestrian competitor (generating losses) who started an interior design business (generating a profit) that specialized in horse barns and second homes. The taxpayer sought to deduct her horse-related expenses against her design income. Holding for the taxpayer that these two undertakings constituted a single "activity" for purposes of § 183, the court stressed that the unique nature of the taxpayer's design undertaking made it necessary for her to participate in her equestrian engagements in order to attract clients. The court found significant her contention that more than 90% of her design clients came from her equestrian contacts. She maintained that conventional advertising was disliked by her client base and, thus, that participation in her equestrian competitions was the only effective means of generating her clients.
The Tax Relief Act extended § 222, pertaining to the above-the-line deduction for certain higher education costs, through the end of 2007. The same act also extended § 62(a)(2)(D), pertaining to the above-the-line deduction for certain expenses of elementary and secondary school teachers, through the end of

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