Tomburello v. Comm'r of Internal Revenue, Docket No. 30044-83.

CourtUnited States Tax Court
Citation86 T.C. 540,86 T.C. No. 34
Docket NumberDocket No. 30044-83.
PartiesLOUIS R. TOMBURELLO AND ANNETTE C. TOMBURELLO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Decision Date31 March 1986

OPINION TEXT STARTS HERE

Petitioner was employed as a ‘21‘ card dealer. During the course of his employment he received ‘tokes‘ (tips) from players at the ‘21‘ game tables.

Petitioner did not maintain any records of the tokes he received. He did not report their receipt to his employer or on his Federal income tax return. Respondent served a summons on petitioner's employer for the production of payroll records with respect to petitioner's employment.

HELD, tokes received by petitioner constitute income. HELD FURTHER, section 7609, I.R.C. 1954 (Special Procedures for Third-Party Summonses), is inapplicable to the summons served by respondent on petitioner's employer for payroll records with respect to petitioner's employment. HELD FURTHER, petitioner is liable for an addition to tax under section 6653(a). Louis R. Tomburello and Annette C. Tomburello, pro se.

JONATHAN J. ONO, for the respondent.

STERRETT, Chief Judge:

By notice of deficiency dated August 1, 1983, respondent determined a deficiency in petitioners' Federal income tax for the taxable year ended December 31, 1980 in the amount of $3,515 and an addition to tax pursuant to section 6653(a) 1 in the amount of $175.75.

The primary issue for decision is whether petitioners have unreported income for the 1980 taxable year based on the receipt of ‘tokes‘ during employment as a ‘21‘ card dealer. Also at issue is whether petitioners are liable for an addition to tax under section 6653(a) for negligence or intentional disregard of rules and regulations. 2

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulated facts and exhibits are incorporated herein by this reference.

Petitioners Louis R. Tomburello and Annette C. Tomburello, were husband and wife during the 1980 taxable year and resided in Reno, Nevada at the time they filed their petition in this case.

They filed their joint Federal income tax return for the 1980 taxable year with the Internal Revenue Service Center in Ogden, Utah. All references to petitioner in the singular refer to petitioner Louis R. Tomburello.

During the taxable year in issue, petitioner was employed as a ‘21‘ card dealer at the MGM-Grand-Reno Hotel and Casino (MGM) in Reno, Nevada. The parties have stipulated that in 1980 petitioner worked there for a total of 1,196.5 hours, specifically, 685.3 hours on the day shift (from approximately 10 a.m. until 6 p.m.) and 511.2 hours on the swing shift (from approximately 8 p.m. until 4 a.m.).

In the course of his employment, petitioner received ‘tokes‘ from players at the ‘21‘ game tables. ‘Tokes‘ are casino chips (house checks) that players either give to the card dealers directly or place along with their own bets as bets for the dealers. The tokes received by the ‘21‘ card dealers on each shift were pooled and divided up evenly among all of the dealers of that shift.

Petitioner did not maintain any records of the tokes he received. He did not report his receipt of tokes to his employer or on his 1980 Federal income tax return. Respondent served a summons on MGM for the production of payroll records with respect to petitioner's employment.

In the statutory notice of deficiency, respondent determined a deficiency in petitioner's Federal income tax and an addition to tax under section 6653(a) for the 1980 taxable year based on petitioner's failure to report as income tokes received during employment.

OPINION

The primary issue for decision is whether petitioner has unreported income based upon his receipt of tokes during employment as a ‘21‘ card dealer. In the notice of deficiency, respondent determined a $3,515 deficiency in petitioner's 1980 Federal income tax, plus the negligence addition to tax computed thereon of $175.75, for failure to report toke receipts of $13,742. 3

At trial, respondent agreed to reduce the amount of the deficiency based on petitioner's unreported toke receipts. The parties stipulated that during 1980 petitioner worked as a ‘21‘ card dealer for 685.3 hours during the day shift and for 511.2 hours during the swing shift, for a total of 1,196.5 hours. The parties then recomputed petitioner's unreported toke receipts based upon hourly toke rates of $7.01 during the day shift and $7.87 during the swing shift, for a total of $8,827.09 in unreported toke receipts.

Petitioner does not contest that in 1980 he received tokes in the amount recomputed at trial. However, petitioner maintains that the tokes do not constitute taxable income, but rather are gifts from the gambling patrons that are nontaxable under section 102. 4 Petitioner bears the burden of proof. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

It has been established that tokes do constitute income. Olk v. United States, 536 F.2d 876 (9th Cir. 1976); Catalano v. Commissioner, 81 T.C. 8, 13 (1983), affd. without published opinion sub nom. Knoll v. Commissioner, 735 F.2d 1370 (9th Cir. 1984). The Court of Appeals for the Ninth Circuit, to which this case would be appealable, has rejected the argument that tokes constitute nontaxable gifts. Olk v. United States, 536 F.2d at 879.

Petitioner purports to raise two additional arguments not addressed by the court in Olk. First, he argues that the tokes do not constitute income because there is no contractual relationship between himself and the gambling patrons. Petitioner contends that in Olk the court did not consider the issue of who provides the service to the casino patrons; that is, whether it is the casino management or the dealers. Petitioner's attempt to distinguish the instant case from Olk on this basis must fail. The facts set forth in Olk, at 877, indicate that this issue was addressed, as the court stated that—

(n)o obligation on the part of the patron exists to give (money) to a dealer and ‘dealers perform no service for patrons which a patron would normally find compensable.‘ Another finding is that there exists ‘no direct relation between services performed for management by a dealer and benefit or detriment to the patron.‘

Contrary to petitioner's argument, these findings did not deter the court in Olk from its conclusion that the tokes constitute income.

Petitioner's second argument, even less persuasive, is that wages are not ‘capital gain‘ and therefore are not taxable as income. Clearly, wages do constitute income under section 61 and section 1.61-2(a)(1), Income Tax Regs., Moreover, this hardly presents a novel argument. Petitioner's claim is frivolous and has been rejected previously by this Court. Rowlee v. Commissioner, 80 T.C. 1111, 1122 (1983).

Petitioner also raises two procedural arguments with respect to respondent's determination of the deficiency. Respondent served a summons on MGM, petitioner's employer, for the production of payroll records with respect to petitioner's employment, in accordance with section 7602. 5 Petitioner argues that his due process rights have been violated because he did not receive notice of this summons in accordance with section 7609(a). 6 Therefore, petitioner argues that he has been denied the right to intervene with respect to enforcement of the summons under section 7609(b).

Section 7609 provides in relevant part as follows:

SEC. 7609. SPECIAL PROCEDURES FOR THIRD-PARTY SUMMONSES.

(a) Notice.—

(1) In general. If—

(A) any summons described in subsection (c) is served on any person who is a third-party recordkeeper, and

(B) the summons requires the production of any portion of records made or kept of the business transactions or affairs of any person (other than the person summoned) who is identified in the description of the records contained in the summons,

then notice of the summons shall be given to any person so identified within 3 days of the day on which such service is made, but no later than the l4th day before the day fixed in the summons as the day upon which such records are to be examined.

(3) Third-party recordkeeper defined.—For purposes of this subsection, the term ‘third-party recordkeeper‘ means—

(A) any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank (as defined in section 581), or any credit union (within the meaning of section 501(c)(14)(A));

(F) any accountant;

(b) Right to Intervene; * * *.—

(1) Intervention.—Notwithstanding any other law or rule of law, any person who is entitled to notice of a summons under subsection (a) shall have the right to intervene in any proceeding with respect to the enforcement of such summons under section 7604 (Enforcement of Summons).

Petitioner's argument raises the question of whether a taxpayer's employer constitutes a third-party recordkeeper within the meaning of section 7609, an issue of first impression for this Court. However, the issue has been addressed by numerous other courts, 7 including the Court of Appeals for the Ninth Circuit. Rapp v. Commissioner, 774 F.2d 932, 934 (9th Cir. 1985), affg. an unpublished order of this Court dated April 19, 1984; Ponsford v. Commissioner, 771 F.2d 1305, 1308 (9th Cir. 1985). We agree with the conclusions reached therein—that a taxpayer's employer is not a third-party recordkeeper, and that the employer's records are not third-party records, for purposes of section 7609.

Section 7609 provides that the records summoned by respondent must be ‘made or kept of the business transactions or affairs of any person (OTHER THAN THE PERSON SUMMONED) * * *.‘ Section 7609(a)(1)(B)(emphasis added). Also, the legislative history of section 7609 states that a third-party recordkeeper is ‘a person engaged in making or keeping the records involving transactions of other persons.‘ S.Rept. No. 94-938 (1976), 1976-3...

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12 cases
  • Norman v. Commissioner
    • United States
    • United States Tax Court
    • May 27, 1987
    ...error. Rule 142(a); Welch v. Helvering, supra at 115; Leahy v. Commissioner Dec. 43,153, 87 T.C. 56, 73 (1986); Tomburello v. Commissioner Dec. 42,960, 86 T.C. 540, 547 (1986), on appeal (9th Cir., Nov. 10, 1986). Petitioners have failed to carry that burden because they offered no evidence......
  • McCabe v. Commissioner
    • United States
    • United States Tax Court
    • November 4, 1986
    ...is defined in section 61 as all income from whatever source derived including, but not limited to, wages. See Tomburello v. Commissioner Dec. 42,960, 86 T.C. 540, 543 (1986). Petitioner's argument that wages are not taxable income because the basis in his labor equals the amount received fo......
  • Sikora v. Commissioner
    • United States
    • United States Tax Court
    • October 21, 1986
    ...is defined in section 61 as all income from whatever source derived including, but not limited to, wages. See Tomburello v. Commissioner Dec. 42,960, 86 T.C. 540, 543 (1986). It is well settled that tokes constitute income. Olk v. United States 76-2 USTC ¶ 9484, 536 F.2d 876 (9th Cir. 1976)......
  • McGinty v. Commissioner, Docket No. 14622-85.
    • United States
    • United States Tax Court
    • September 5, 1991
    ...that players either give to the dealers directly or place along with their own bets as bets for the dealers. Tomburello v. Commissioner [Dec. 42,960], 86 T.C. 540, 541 (1986), affd. without published opinion 838 F.2d 474 (9th Cir. 1988). Twenty-one dealers routinely pooled all tokes receive......
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