
    THE CITIZENS AND SOUTHERN NATIONAL BANK AND LETTIE P. EVANS, EXECUTORS OF J. B. WHITEHEAD, DECEASED, v. THE UNITED STATES
    [No. 42829.
    Decided June 1, 1936]
    
      Mr. Remiel J. Gantt for the plaintiffs.
    
      Mr. J oseph H. Sheppard, with whom was Mr. Assistant Attorney Generad James W- Morris, for the defendant.
   Whalet, Judge,

delivered the opinion of the court:

This is a suit for the recovery of income tax for 1931. The one question involved is whether plaintiffs are entitled to a deduction on account of losses sustained by their decedent in gambling transactions in France at places where gambling was carried on legally. The applicable statute, section 23 (e), Kevenue Act of 1928, provides for the allowance of deductions for losses, if not compensated by insurance or otherwise,

(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for profit, though not connected with the trade or business.

Admittedly the decedent was not engaged in gambling as a trade or business and the losses were not compensated by insurance or otherwise. The deduction is accordingly allowable, if at all, by virtue of the second proviso which permits the allowance of the deduction if the transactions were entered into for profit even though not connected with his trade or business. The parties agree that the loss claimed was sustained, except to a possible negligible amount, and therefore the sole question remaining, is whether the transactions were entered into for profit, a question of fact.

We have found adversely to plaintiffs on the factual question. We are satisfied the record fully justifies a finding that the transactions were not entered into for profit. The decedent was an individual who had inherited a great fortune and who had never earned any money, except for a short time when he was in the Navy during the World War. While testifying in 1935 he could not give an accurate statement of his net worth though he estimated that it was approximately $2,500,000. His income for 1931 (approximately $250,000) was derived from dividends on inherited property and while he was nominally the head of one of the corporations in which he held stock he gave little time to the direction of its affairs or the affairs of any other property in which he was interested. He could not give the name of a Parisian corporation in which he had invested a considerable sum although it had only gone out of business in 1931.

From 1921 to 1935 the decedent spent most of his time in Europe with headquarters in Paris where he led a life of leisure and as a so-called “sportsman.” During these fourteen years he visited Cannes, Deauville, and other pleasure resorts spending approximately six weeks in each regular season at each of the two places mentioned. He was not a professional gambler, but, while at the various places where gambling was permitted, he indulged in that alluring pastime, particularly at Cannes and Deauville where he played chemin de fer. His testimony is that he played that game at those places for six or seven years prior to 1931, but that he was never a winner when he left a casino. We understand from the latter statement that he did win at times, but that the net result of play at all times was a loss. The losses in those years were not of the magnitude sustained in 1931; they are not involved in this proceeding and decedent testified that they were not entered into for profit. We do not have, therefore, a situation which sometimes arises where an individual has been taxed in the “fat” years and denied losses in the “lean” years. Cf. Beaumont v. Helvering, 73 Fed. (2d) 110.

In spite of the lack of success attending his efforts over six or seven years, and in the face of the fact that the decedent realized the odds were against him — and his past experience bore eloquent testimony to that effect — he testified, that he played the game in 1931 for profit when he lost the large amounts which are now claimed as deductions, and that he resorted to it for that purpose for the reason that his large income was insufficient to meet his expenses, including alimony to two wives and a pending breach of promise suit for half a million dollars. What the decedent would have us believe is that, in a game where he had consistently lost for years and where he realized the odds were against him, he proceeded to that source for the purpose of realizing a profit to meet his mounting expenses. He is the only witness and his memory is clouded as to all other transactions except this particular gambling venture.

Such testimony overtaxes our credulity and stretches credence to the breaking point. We do not understand that every time a game of chance is entered into with the evanescent hope that the player will win constitutes a transaction entered into for profit within the meaning of the statute. In our opinion, the words used connote transactions for profit in the reasonable sense that any business is undertaken. Surely, a reasonably prudent business man would not embark in a business venture where the odds were admittedly against him and where his own unbroken line of experience had demonstrated over a period of years that losses would be the only fruit of his efforts. Of course, many people engage in such pastimes, even though the vast majority of them lose, and it must be so, otherwise the gambling casino could not stay in existence. But profit in the business sense is not what usually motivates the continued playing; it is the thrill and exhilaration which are inherent in taking a chance. As the Board of Tax Appeals said in Louis D. Beaumont, 25 B. T. A. 474 (affirmed Beaumont v. Helvering, 78 Fed. (2d) 110), all gambling transactions are not entered into for profit within the meaning of the statute.

The system evolved and used by the decedent, as a result of the study which he said he had made of the game, seems nothing more than a vaporous supposition that luck would attend his efforts if followed in a certain sequence, even though he knew the odds were against him and that losses by players made possible the continued operation of the club. The losses sustained are apparently large but, when considered in relation to his great wealth, large income and his modern standards and previous habits of living, the amounts lost are not more than a man of this type might well be expected to spend in the pursuit of pleasure.

On the whole we are satisfied that the record does not establish that the gambling transactions which resulted in the losses claimed were entered into for profit within the meaning of the statute. The petition must accordingly be dismissed. It is so ordered.

Williams, Judge; Littleton, Judge; Green, Judge; and Booth, Chief Justice, concur.  