Estate of Todisco v. C.I.R., 84-1494

Citation757 F.2d 1
Decision Date13 March 1985
Docket NumberNo. 84-1494,84-1494
Parties-1043, 85-1 USTC P 9256 ESTATE OF Maurice G. TODISCO, Framingham Trust Company, Executor, Petitioner, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Chester M. Howe, Boston, Mass., with whom Gaston Snow & Ely Bartlett, Boston, Mass., was on brief for petitioner, appellant.

Bruce R. Ellisen, Washington, D.C., with whom Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup and Richard Farber, Tax Div., Dept. of Justice, Washington, D.C., were on brief for respondent, appellee.

Before CAMPBELL, Chief Judge, McGOWAN, * Senior Circuit Judge, and BOWNES, Circuit Judge.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal by the estate of Maurice G. Todisco, through the Framingham Trust Company, its executor, from a decision of the United States Tax Court that there was a deficiency in Todisco's income tax for the taxable year 1972 of $14,598 plus interest and penalties for negligent underpayment and failure to timely file a return, and that there was no deficiency or overpayment for the taxable year 1973. Estate of Todisco v. Commissioner, 46 T.C.M. (CCH) 35 (1983).

I. FACTS

Maurice G. Todisco was part owner and an employee of a bar. His 1972 and 1973 federal income tax returns reported income earned from the bar but not from a bookmaking business which he also conducted.

Todisco ran the bookmaking operation from April 1, 1972 to April 14, 1973. Todisco accepted wagers on sporting events, horseracing and numbers. He employed one Anthony Pellegrino to answer the telephone and record wagers. Pellegrino was the principal witness for the Estate at the trial.

On April 14, 1973, the Massachusetts State Police arrested Todisco for gaming violations. The police seized $5,925.25 in cash at the time of Todisco's arrest, $26,000 in cash from Todisco's safety deposit boxes soon thereafter, and $4,521 from Todisco the following November. Those sums, totalling $36,446.25, were applied in toto to satisfy assessments in like amount against Todisco for state income taxes due on Todisco's bookmaking income.

At the time of Todisco's arrest, the Massachusetts police also seized betting slips for the dates April 2-13, 1973. The total gross wagers for those dates were as follows:

                     Date      Gross Wagers
                -------------  ------------
                April 2, 1973       $350.84
                      3              255.75
                      4            4,509.90
                      5           11,427.30
                      6            1,302.00
                      7           11,647.50
                      8           10,240.00
                      9              768.25
                      10           8,244.25
                      11           3,067.75
                      12           5,049.00
                      13           9,093.50
                

Copies of the actual betting slips for April 13, 1973 were introduced into evidence before the tax court. Copies of the slips for the dates April 2-12 were in the Commissioner's possession prior to trial, but were either lost or destroyed and so were unavailable at trial. No other betting slips or other wagering records were found or introduced into evidence, which was to be expected given Todisco's routine practice of destroying betting slips after two weeks.

On April 13, 1973, the one day for which copies of betting slips are available, Todisco's book won $4,690.25 and lost $4,140. Todisco's gross profits were thus $550.25 on gross wagers of $9,093.50, yielding a gross profit percentage of 6.05 percent. The April 13 betting was distributed among basketball, baseball, horseracing, and numbers as follows:

                                                             Todisco's
                                                               Gross
                              Gross     Bettor     Bettor      Profit
                              Bets       Lost        Won       (Loss)
                Basketball  $7,450.00  $4,065.00  $3,125.00   $940.00
                Baseball       330.00     225.00      75.00    150.00
                Horses          -         350.00     857.00   (507.00)
                Numbers         -          50.25      83.00    (32.75)
                            ---------  ---------  ---------  ---------
                            $9,093.50  $4,690.25  $4,140.00   $550.25
                

Gross wagers for numbers and horseracing were not recorded; from the gross wagers on other events, it is possible to determine that the combined gross wagers on numbers and horseracing was $1,313.50. Thus, on that one day, Todisco suffered losses on horses and numbers, and had a gross profit of 12.6 percent on basketball wagers and 45 percent on baseball wagers.

II. TAX COURT DETERMINATION OF TODISCO'S GROSS PROFIT PERCENTAGE

At trial, the Commissioner argued that Todisco's gross profit percentage to be used in calculating Todisco's estimated gross income from bookmaking should be ten percent. As Special Agent Avila, the revenue agent assigned to Todisco's audit, testified, "In reviewing the betting slips, I could see the profit line built right in.... It cost you $5.50 to make $5.00." Avila's testimony reflected Pellegrino's earlier testimony that a bettor would have to put up $55 to win an additional $50 on a basketball game.

Todisco's estate argued that Special Agent Avila's conclusion that Todisco's gross profit percentage was ten percent did not follow from the premised odds. It noted that if one posited a basketball game for which the total bets for each side were equal, i.e., a game with a so-called balanced book, with, say, $55 bet on each side, then Todisco would pay out $50 to the winner and collect $55 from the loser, thereby producing a gross profit of $5 on total wagers of $110; assuming a balanced book, then, Todisco's gross profit percentage would be 4.54 percent. Pellegrino testified that recovering this percentage, known to bookmakers as the "juice," was Todisco's intended means of making a profit, and that Todisco, when presented with an especially unbalanced book, would place balancing bets with other bookmakers to reduce his potential exposure should the team more heavily bet on win. The estate also noted that the actual gross profit percentage for April 13, 1973, the one day for which sufficient records were available, was 6.05 percent. The estate argued that the segment of the betting generating the highest gross profits and a higher-than-average gross profit percentage, basketball, was overrepresented in the betting slips for April 13, 1973 because three NBA playoff games, including one involving the Boston Celtics, were played on that date; as Pellegrino testified, bettors would "go wild" during the playoffs. Finally, the estate presented considerable evidence that Todisco's net worth and lifestyle were inconsistent with the amount of bookmaking income a ten percent gross profit percentage would indicate.

The tax court acknowledged that the Commissioner's method for calculating Todisco's gross profit percentage was spurious. It also found from an examination of the betting slips from April 13, 1973 that the factual assumption underlying the estate's theoretical estimate of Todisco's gross profit percentage at 4.54 percent, i.e., Todisco's having kept a balanced book, did not obtain. For example, on the Boston Celtics-Atlanta Hawks game of April 13, 1973, $2,885 was bet on the Celtics, but only $1,100 was bet on the Hawks. While it is true that Todisco would try to compensate for a particularly unbalanced book by making balancing bets with other bookmakers, the fact that he was willing to accept unbalanced wagers made it impossible in the tax court's eyes to use 4.54 percent as the best estimate of Todisco's gross profit percentage. The tax court concluded, "[I]t is impossible, without adequate records, to know what his exact profit percentage was," but "[a]fter careful consideration of all the facts in the record, with particular emphasis on the spread of profit percentages among the events on April 13, 1973, we find that Todisco's profit percentage was 8 percent." 46 T.C.M. at 41.

The estate contends that the evidence does not support a finding that Todisco's gross profit percentage exceeded 6.05 percent. Since the determination of Todisco's gross profit percentage is a matter of fact, we examine the finding of the tax court only for the presence of clear error. Taylor v. Commissioner, 445 F.2d 455, 459 (1st Cir.1971). Because we can discover no material support in the record for a gross profit percentage of eight percent (or any other figure in excess of 6.05 percent), we are obliged to conclude that the tax court committed clear error in calculating the 1973 tax deficiency on the basis of a profit percentage of eight percent.

The tax court's sole stated ground for estimating the 1973 gross profit percentage at eight percent was the spread of profit percentages on April 13, 1973: 45 percent for baseball, 12.6 percent for basketball, and losses on numbers and horseracing. For this spread to be evidence for a higher gross profit percentage than 6.05 percent, the court was required to find either that the profitable bets were systematically underrepresented in the mix of betting for April 13, 1973, or that the various profit percentages were systematically too low, or both. As to the former, the evidence suggests, if anything, that the profitable bets were overrepresented on that date, since April 13 fell both at the beginning of the baseball season, when bets could be expected to be higher, and during the NBA playoffs, in which the Boston Celtics were involved, while numbers and horseracing presumably continued year around or nearly so at constant levels. As to the latter, the only evidence presented was the theoretical estimate based on a balanced book of 4.54 percent for sporting events, and testimony by Pellegrino that Todisco's profit margins on horseracing and numbers were 5 and 50 percent, respectively, and that baseball wagering generally lost money for bookmakers and was only offered as a service to bettors. Thus, aside from wagering on numbers, which made up only a tiny fraction of the total wagers, the evidence suggests...

To continue reading

Request your trial
12 cases
  • Delaney v. C.I.R.
    • United States
    • U.S. Court of Appeals — First Circuit
    • February 8, 1996
    ...212 (1933); see also United States v. Janis, 428 U.S. 433, 439, 96 S.Ct. 3021, 3025, 49 L.Ed.2d 1046 (1976); Estate of Todisco v. Commissioner, 757 F.2d 1, 6 (1st Cir.1985) (the basic rule in all tax cases places the burden of proof with the taxpayer). The rationale for this rule is more de......
  • White v. US
    • United States
    • U.S. District Court — District of Massachusetts
    • March 30, 1995
    ...is presumed correct, and, in seeking a redetermination, the taxpayer bears the burden or proof to show otherwise"); Estate of Todisco v. C.I.R., 757 F.2d 1, 6 (1st Cir.1985) ("basic rule in all tax cases" is that "burden of proof rests on the taxpayer"); United States v. Rexach, 482 F.2d 10......
  • Cavallaro v. Comm'r
    • United States
    • U.S. Court of Appeals — First Circuit
    • November 18, 2016
    ...that his method of arriving at the $29,670,000 valuation for the gift may nonetheless have been incorrect. Cf.Estate of Todisco v. C.I.R., 757 F.2d 1, 5 (1st Cir.1985) ("[G]ranting for the sake of argument that the Commissioner's method of arriving at a ten percent gross profit margin was a......
  • Mayo v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • January 25, 2011
    ...even where wagering activities were conducted as a trade or business, citing Boyd v. United States, supra, Estate of Todisco v. Commissioner, 757 F.2d 1, 6–7 (1st Cir.1985), affg. in part and vacating in part T.C. Memo.1983–247, Nitzberg v. Commissioner, supra,7 Skeeles v. United States, su......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT