Boyd v. U.S.
Decision Date | 14 June 1985 |
Docket Number | No. 84-1828,84-1828 |
Citation | 762 F.2d 1369 |
Parties | -5266, 85-2 USTC P 9458 William W. BOYD and Ruth G. Boyd, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. |
Court | U.S. Court of Appeals — Ninth Circuit |
Monte N. Stewart, Wright, Shinehouse & Stewart, Las Vegas, Nev., for plaintiffs-appellants.
Laurie A. Snyder, Dept. of Justice, Washington, D.C., for defendant-appellee.
On appeal from the United States District Court for the District of Nevada.
Before FLETCHER, BOOCHEVER and NORRIS, Circuit Judges.
Boyd, a professional poker player, managed the cardroom at a casino and played in the games himself to attract customers. Boyd brought a refund claim in the district court, seeking to deduct as business expenses his poker losses, his contributions to the house take or "take-off" on each hand, and his tipping expenses. In the alternative, he contended that his contractual share of the house take was wagering income and that he could offset his poker losses against that income. We hold that Boyd's contractual share of the take-off was not gain from wagering transactions, and that he did not adequately raise the business expense deductions in his refund claim. We therefore affirm the district court's denial of his refund claim.
Boyd, a renowned professional poker player, ran the poker room at the Golden Nugget Casino in Las Vegas from 1946 to 1982. Pursuant to his contract, Boyd played in the games himself to attract customers and stimulate play. He did so with his own money. He alleges that because his duties as manager disturbed his concentration at the table, he sustained heavy gambling losses during his employment. He also spent a considerable amount of money tipping other employees, and paying his share of the house take-off on each hand.
Boyd's contract had an incentive clause awarding him a portion of the take-off in the card room. Take-off is the fee the house charges card players for playing poker at the casino. Take-off at the Nugget is computed in one of three alternate ways: a seat charge per hour, a table charge per hour, or a pot fee of the lesser of ten percent or three dollars per pot. The house is not a participant in the game. In essence, it makes its money on poker by renting its facilities to the players.
For the tax years 1973, 1974, and 1975, Boyd reported his salary plus his share of the take-off as wages, and claimed deductions for gaming expenses. The Internal Revenue Service (IRS) disallowed the deductions. Boyd paid the resulting deficiencies and filed claims for refunds. Each claim stated the following:
During the year [1973, 1974, 1975] William W. Boyd was employed by the Golden Nugget Casino in Las Vegas, Nevada as a Supervisor and Director of the casino poker game room. Under the terms of his employment he was required to be an active participant in the poker game under his control. His presence and participation in the poker game generated interest among other poker players due to his name and reputation. The direct result of his participation increased the poker play and in turn increased his income under his employment agreement.
For the year [1973, 1974, 1975] Mr. Boyd incurred losses from participating in the Golden Nugget Casino poker games in the amount of [$94,200, $40,000, $153,400]. This expense is clearly a business promotional and advertising expense deductable [sic] under Section 162(a) of the 1954 Internal Revenue Code.
In the alternative, Mr. Boyd contends that his incentive compensation is gambling income and the losses that he sustained should be allowed as a deduction up to the amount of the incentive income.
The IRS disallowed the claims for refund, and Boyd sued in district court.
At trial, Boyd sought to prove three types of deductible expenses: expenses incurred in tipping other employees, expenses incurred in contributing to the house take-off when he played poker at work, and his losses incurred playing poker at work. The court ruled, however, that Boyd's refund claim did not sufficiently apprise the IRS that he would be claiming tipping and take-off expenses, and that Boyd could not raise these issues for the first time in the district court. The district court also ruled against Boyd on his claim that he could deduct his poker losses, either as business expenses, or as gaming losses offset against his gains from his contractual share of the take-off.
Each issue in this case involves the construction of a statute in the context of undisputed facts; the standard of review as to all questions presented is de novo. Southeast Alaska Conservation Council, Inc. v. Watson, 697 F.2d 1305, 1309 (9th Cir.1983).
Section 7422(a) of the Internal Revenue Code 1 provides:
No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed ... until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.
The regulations promulgated under section 7422(a) state, "The claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof." Treas.Reg. Sec. 301.6402-2(b)(1). If the refund claim does not meet the requirements of the Code and the regulations, the suit must be dismissed, L.E. Myers Co. v. United States, 673 F.2d 1366, 1367, 230 Ct.Cl. 142 (1982), because filing pursuant to the rules is a jurisdictional prerequisite, Martinez v. United States, 595 F.2d 1147, 1148 (9th Cir.1979) (per curiam); Bear Valley Mutual Water Co. v. Riddell, 493 F.2d 948, 951 (9th Cir.1974).
There are two reasons for these requirements: to prevent surprise, and to give the IRS adequate notice of the claim and its underlying facts so that it can make an administrative investigation and determination regarding the claim. Burlington Northern Inc. v. United States, 684 F.2d 866, 868, 231 Ct.Cl. 222 (1982). Although courts have not required taxpayers to provide detailed explanations of their legal theories, or to develop full factual backgrounds in their refund claims, Lemoge v. United States, 378 F.Supp. 228, 232-33 (N.D.Cal.1974), the IRS is entitled to take the refund claim at face value and examine only the points to which it directs attention, United States v. Garbutt Oil Co., 302 U.S. 528, 531-33, 58 S.Ct. 320, 322-23, 82 L.Ed. 405 (1938). If the claim on its face does not call for investigation of a question, the taxpayer may not later raise that question in a refund suit.
In his claim, Boyd stated that he "incurred losses from participating in the [casino] poker games" and that "[t]his expense" was deductible under section 162(a). 2 "This expense" plainly refers to the poker losses, and nowhere does the claim mention tipping or take-off fees. Taken at its face value, Boyd's claim directed the IRS' attention to losses incurred betting on poker hands, and nothing else. Moreover, the wording of Boyd's alternative theory strengthens this impression. It refers to section 165(d), which provides that wagering losses may be deducted only up to the amount of wagering gains, reinforcing by implication the claim's express statement that the losses for which deduction was sought were actual wagering losses, not other unspecified expenses incidental to gambling which would not be subject to the section 165(d) deduction limit.
Boyd's claim did not adequately apprise the IRS so that it could " 'make an intelligent administrative review of the claim.' " Lemoge, 378 F.Supp. at 232 (citation omitted). Nothing in the claim notified the IRS that it needed to investigate how much Boyd had expended in tips, or how much he contributed to the take-off. Moreover, nothing in the claim apprised the IRS that it should be prepared to argue, as a matter of fact or law, whether take-off paid by a player is a part of the wager or a separate fee, or whether lavish tipping of subordinate employees as an example to customers is an ordinary and necessary business expense. We hold that Boyd's claim did not adequately raise the tipping and take-off expenses.
Boyd sought to deduct his poker losses as an ordinary and necessary business expense under section 162(a). Although Boyd's refund claim properly raised this issue, the district court denied the deduction, holding that a specific code provision limiting deductibility of gambling losses controlled rather than the general provisions of section 162(a).
This case is controlled by our decision in Nitzberg v. Commissioner, 580 F.2d 357 (9th Cir.1978). In Nitzberg, a gaming club employed shills to play in the card games when insufficient customer-gamblers were playing. The club provided the shills with chips. If a shill lost, the club absorbed the loss. If he won, he split his winnings evenly with the club. In the tax years at issue, the shills as a group lost more than fifty percent of their winnings, so the club had a net loss, which it sought to deduct as a section 162(a) business expense. Id. at 358.
We held that although on the facts the losses were an ordinary and necessary business expense within the meaning of section 162(a), section 165(d) precluded deduction. That section provides that "losses from wagering transactions shall be allowed only to the extent of the gains from such transactions." Because the shills were betting with the club's money, and the club shared in each win or loss, the club was engaged in wagering transactions, and section 165(d) was applicable. Id. To resolve the conflict between 162(a) and 165(d), we looked to the rule that a specific statute controls a general statute. See United States v. Bates, 429 F.2d 557, 559 (9th...
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