Department of State Revenue Docket 250393 Other

in-20250827-IR-045250393NRA: DEPARTMENT OF STATE REVENUE

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Summary

Nonresident was responsible for additional Indiana income tax because in her spare time she frequented an Indiana casino to play slot machines and had income from Indiana sources. Nonresident was allowed to claim losses under the permissible “per session” method.

The agency’s own summary, as published.

The rule, in full

1,602 words as published, August 27, 2025. View the original →

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242322 Indiana Individual Income Tax For the Tax Year 2023 HOLDING Nonresident was responsible for additional Indiana income tax because in her spare time she frequented an Indiana casino to play slot machines and had income from Indiana sources. Nonresident was allowed to claim losses under the permissible “per session” method. ISSUE

I. Indiana Individual Income Tax – Burden of Proof.

Authority: I.R.C. § 61; I.R.C. § 62; I.R.C. § 165; IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2; IC 6-8.1-5-1; IC 6-8.1-5-4; Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64 (Ind. 2009); Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23 (1987); Popovich v. Indiana Department of State Revenue, 90 N.E.3d 704 (Ind. Tax Ct. 2017); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Ferguson v. C.I.R., T.C. Summ. Op. 2007-30, 2007 WL 610059 (Feb. 28, 2007); Treas. Reg. § 1.183-2; Internal Revenue Service, Chief Counsel Attorney Memorandum, IRS AM 2008-011. Taxpayer protested the refund denial and assessment of additional individual income tax. STATEMENT OF FACTS Taxpayer is a nonresident who works for an employer outside of Indiana. Taxpayer frequents an Indiana casino in her spare time. Based on “Business income or loss from federal Schedule C,” Taxpayer filed a nonresident return, IT-40PNR, to request a $6,962 refund of tax that the Indiana casino withheld and remitted during 2023. Taxpayer’s return reported a net of $32,209 Indiana income and deducted a total of $216,725 business expense, which included gambling losses, tax preparation services, vehicle expenses, and cellphone. The Indiana Department of Revenue (“Department”) reviewed and adjusted Taxpayer’s filing. The Department’s adjustments resulted in a refund denial and a proposed assessment. Taxpayer protested the refund denial and assessment. A hearing was held. Taxpayer submitted additional documents to support her protest. This Letter of Findings results.

I. Indiana Individual Income Tax – Burden of Proof.

DISCUSSION The Department denied the refund requested and proposed an assessment. Taxpayer contended that she was a professional gambler and was entitled to the tax refund withheld by the Indiana casino. The issue is whether Taxpayer’s documentation demonstrated that she was entitled to the refund and the assessment was incorrect.

A. The Applicable Law 

IC 6-8.1-5-4(a) requires that “[e]very person subject to a listed tax must keep books and records so that the [D]epartment can determine the amount, if any, of the person’s liability for that tax by reviewing those books and records. The records [] include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks.” The person also “must allow inspection of the books and records and returns by the [D]epartment or its authorized agents at all reasonable times.” IC 6-8.1-5-4(c). When the person subject to the listed tax fails to keep books and records, under IC 6-8.1-5-1(b), the Department “shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment” if the Department “reasonably believes that a person has not reported the proper amount of tax due[.]” All tax assessments are prima facie evidence that the Department’s claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC 6-8.1-5-1(c). Importantly, “each tax year stands alone.” Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64, 69 (Ind. 2009). The taxpayer is required to provide documentation to explain and support his challenge. When an agency is charged with enforcing a statute, the jurisprudence defers to the agency’s reasonable interpretation of that statute “over an equally reasonable interpretation by another party.” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010). Indiana imposes an adjusted gross income tax “upon the adjusted gross income of every resident person, and on that part of the adjusted gross income derived from sources within Indiana of every nonresident person.” IC 6-3-2-1(a). The Indiana statute refers to the Internal Revenue Code to compute what is considered the taxpayer’s Indiana income tax. A resident’s income is determined by starting with the federal adjusted gross income and making certain adjustments. IC 6-3-1-3.5. A nonresident’s income derived from sources within Indiana may include income from doing business in Indiana and from a trade or profession conducted in Indiana. IC 6-3-2-2(a)(2) and (a)(3). For federal and Indiana income tax purposes, gains from gambling winnings are income subject to income tax pursuant to I.R.C. § 61(a), which provides that gross income includes “all income from whatever source derived[.]” A taxpayer who is in a trade or business may be able to claim deductions attributable to a trade or business carried on by the taxpayer if certain requirements are met. I.R.C. § 62(a)(1). If the taxpayer is in the business of professional gambling, to compute the taxpayer’s federal adjusted gross income, the taxpayer may deduct certain expenses incurred to carry such trade or business. If the taxpayer does not qualify as a professional gambler, I.R.C. § 165(d) allows a deduction for “[l]osses from wagering transactions . . . only to the extent of the gains from such transactions.” The Internal Revenue Service instructs a “casual gambler who elects to itemize deductions may deduct wagering losses, up to wagering gains, on Form 1040, Schedule A . . . A casual gambler who takes the standard deduction rather than electing to itemize may not deduct any wagering losses.” Internal Revenue Service, Chief Counsel Attorney Memorandum, IRS AM 2008-011. To determine if a taxpayer is in the business of professional gambling, the Indiana Tax Court in Popovich v. Indiana Department of State Revenue, 90 N.E.3d 704 (Ind. Tax Ct. 2017), adopted “the two-part test set forth in Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23, 107 S. Ct. 980, 94 L.Ed.2d 25 (1987).” Id. at 710. The test “requires a taxpayer claiming to be engaged in the business of professional gambling to demonstrate that he is ‘involved in the activity with continuity and regularity and that [his] primary purpose for engaging in the activity . . . [is] for income or profit.’” Id. A “sporadic activity, a hobby, or an amusement diversion does not qualify.” Id. at 711. The United States Tax Court in Ferguson v. C.I.R., T.C. Summ. Op. 2007-30, 2007 WL 610059 (Feb. 28, 2007), further explained:

B. The Department’s Initial Review and Proposed Assessment 

Upon initial review, the Department determined that Taxpayer did not qualify as a professional gambler. The Department adjusted Taxpayer’s tax filing and disallowed expenses, including her $198,294 gambling losses claimed in her federal Schedule C. The disallowance resulted in a refund denial and a proposed assessment.

C. Taxpayer’s Protest  

Taxpayer protested the refund denial and the proposed assessment. Referencing Commissioner v. Groetzinger and Treas. Reg. § 1.183-2, Taxpayer argued that she is a professional gambler. Thus, Taxpayer argued that she was permitted to deduct the business expenses, including the $198,294 gambling losses. Taxpayer further argued that the assessment was overstated because she already reported $32,209 income based on her W-2Gs as a professional gambler. According to Taxpayer, the Department’s assessment incorrectly added the same $32,209 to her W-2G income again. Taxpayer provided additional documents, including her federal and Indiana tax filings, Casino-generated gaming history statements, Form W-2Gs, and spreadsheets summarizing her winnings and losses to support her protest.

D. Analysis and Conclusion

As mentioned, all tax assessments are presumed to be correct. IC 6-8.1-5-1(c). Taxpayer bears the burden of proving otherwise. Taxpayer here argued that she was entitled to deduct business expenses, including her $198,294 gambling losses, because she was a professional gambler. Upon review, the Department is not able to agree. Specifically, Taxpayer lived and worked outside of Indiana and her documents showed that she received W-2 wages paid by her employer. Taxpayer’s documentation failed to support that she “involved in the activity with continuity and regularity and that [her] primary purpose for engaging in the activity . . . [is] for income or profit” because her documents showed that when she frequented the Indiana casino in her spare time, she only played slot machines. As such, pursuant to Groetzinger and Ferguson, “gambling against a machine that is programmed to make money for the casino [is] a sporadic activity, hobby, or amusement diversion” and is not “a trade or business with the participant’s primary purpose being income or profit.” The Department thus is not able to agree that Taxpayer was a professional gambler. Taxpayer was not permitted to deduct such business expenses. Nonetheless, the Department is prepared to agree that the assessment incorrectly added the same $32,209 to her W-2G income again and Taxpayer is allowed to deduct her losses under the “per session” method. See I.R.C. § 165(d) and IRS AM 2008-011. To conclude, Taxpayer was not a professional gambler and was not permitted to deduct business expenses stated in her Schedule C. Nonetheless, Taxpayer demonstrated that the assessment was overstated and she was allowed to net winnings and losses under the “per session” method. The Department will conduct a supplement review. FINDING Taxpayer’s protest concerning the $6,962 refund claim is denied. As to Taxpayer’s protest of the assessment, Taxpayer is sustained to the extent that she is allowed to net her winnings and losses based on the “per session” method outlined in IRS AM 2008-011. June 13, 2025 Replaces Finding Document: New

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