Popovich v. Ind. Dep't of State Revenue

• Decision Date: 29 December 2017
• Docket Number: Cause No. 49T10–1010–TA–00053
• Citation: 90 N.E.3d 704
• Parties: Nick POPOVICH, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

90 N.E.3d 704

Nick POPOVICH, Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

Cause No. 49T10–1010–TA–00053

Tax Court of Indiana.

FILED December 29, 2017

ATTORNEYS FOR PETITIONER: JAMES K. GILDAY, GILDAY & ASSOCIATES, P.C., Indianapolis, IN, JAIME L. TURLEY PERZ, ATTORNEY AT LAW, Valparaiso, IN

ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR., ATTORNEY GENERAL OF INDIANA, WINSTON LIN, DEPUTY ATTORNEY GENERAL, Indianapolis, IN

WENTWORTH, J.

Nick Popovich appeals the Indiana Department of State Revenue's Proposed Assessments of adjusted gross income tax (AGIT) for the 2003 and 2004 tax years. The Court, having previously determined that the Department's 2003 Proposed Assessment was void, see Popovich v. Indiana Dep't of State Revenue (Popovich VII ), 52 N.E.3d 73, 77–78 (Ind. Tax Ct. 2016), now addresses the final issue in this case: whether Popovich was a professional gambler eligible for certain gambling-related deductions from his Indiana adjusted gross income for the 2004 tax year. The Court finds that Popovich was not eligible for those deductions because he was not a professional gambler in 2004.

FACTS¹ AND PROCEDURAL HISTORY

Popovich, a resident of Indiana, started playing blackjack at the age of 19. (See Trial Tr. at 10, 93–94.) Over the years, he continued to gamble with family and friends recreationally and on special occasions. (See Trial Tr. at 28 – 29, 93–94; Stipulated Facts & Exhibits ("Stip."), Confd'l Ex. 22 at 42–45.) Popovich married Patricia Sage–Popovich in the late 1980s; the couple subsequently moved into a home in Valparaiso, Indiana.² (See Stip., Confd'l Ex. 22 at 14; Trial Tr. at 10 – 11.)

In 1994, Patricia began to operate Sage–Popovich, Inc. ("SPI"), a corporation that provided a variety of aviation-related services, including airplane detailing, liquidations, and repossessions, from the couple's Valparaiso residence. (See Stip., Confd'l Ex. 22 at 15–30, Ex. 28; Trial Tr. at 12 – 13, 26 – 27.) In contrast, Popovich was engaged in a "transactional business" both before and after that period, which typically involved short-term independent contractor work or other abbreviated entrepreneurial endeavors. (See Trial Tr. at 13 – 25.) (See also Trial Tr. at 26 (stating "from 1987 to 2006 I never had a W–2, I was always one deal to another").) For example, Popovich once worked as a commercial pilot for about 6 months, he repossessed airplanes intermittently, he started a company that moved a steel mill to Australia during a 1½–year period, he was affiliated with a company that manufactured automatic weapons, and he established a charter boat business that "never quite got afloat." (See Trial Tr. at 15 – 25 ; Stip., Confd'l Ex. 22 at 33.) In fact, Popovich spent a week in a Haitian prison during the 1986 coup of Jean–Claude "Baby Doc" Duvalier after his attempt to repossess a plane on behalf of Huntington National Bank failed. (See Trial Tr. at 21 – 22.)

While watching the poker tour on television in late 2001, Popovich began to think about "trying his hand" at a new profession, namely becoming a professional blackjack player. (See Trial Tr. at 29.) After discussing the requirements for becoming a professional gambler with various casino employees, an attorney, and the IRS, Popovich determined that he needed to maintain detailed records of his gambling activities. (See Trial Tr. at 29 – 30, 84.) In addition, Popovich "mapped out" a business plan "in his head," purchased computer software to practice blackjack at home, and learned new gambling techniques, such as card counting and certain progressive betting strategies, by reading blackjack-specific books and blogs. (See Trial Tr. at 30 – 31 ; Pet'r Trial Ex. 1.)

By January of 2002, Popovich was ready to put his business plan into action. (See Trial Tr. at 34 – 37 ; Resp't Trial Ex. 1.) Because Popovich did not have a personal checking account of his own, Patricia used her personal checking account to establish a line of credit³ for Popovich at the Horseshoe Hammond casino. (See Trial Tr. at 52 – 53 ; Stip., Confd'l Ex. 22 at 46–47, 92.) Popovich then put most of his newly learned gambling techniques into practice at Horseshoe Hammond on 40 separate occasions in 2002. (See Resp't Trial Ex. 1; Trial Tr. at 34 – 38 (explaining that he did not use the technique of card counting because he believed it was disfavored in Indiana and illegal in other states).) Popovich kept track of his gambling activities on excel spreadsheets, recording the specific casinos, the dates, the playing times, the "buy in" amounts,⁴ and his wins and losses. (See Resp't Trial Ex. 1.)

After losing just over $200,000 during his trial run in 2002, Popovich reevaluated his gambling strategies and determined that he must, among other things, leave the table when the cards turned against him, take bigger breaks between losses to review his gameplay, and make fewer hunch bets (i.e., bets based entirely on feelings rather than on empirical data or "tried and true" methods). (See Resp't Trial Ex. 1; Trial Tr. at 35, 39, 103–06, 117, 129–30.) Popovich implemented the new strategies in 2003 and continued to track his gambling activities on excel spreadsheets for a total of 69 days at casinos in both Indiana and Nevada, but his losses soared to over $450,000. (See Stip., Ex. 11 at 1103–04, 1107.)

In 2004, however, Popovich's luck changed; his net winnings totaled $44,200 from gambling primarily at the Indiana Horseshoe Hammond casino over a 10½ month period. (See, e.g., Trial Tr. at 44 ; Stip., Ex. 12 at 1109.) During that year, Popovich also gambled at Harrah's East Chicago and Harrah's New Albany; in Louisiana at Harrah's New Orleans; and in Nevada at Caesars Palace, Caesars Tahoe, and Harrah's Tahoe. (See Stip., Ex. 12.) Popovich continued using excel spreadsheets to track his gambling activities albeit in a slightly different manner. (Compare Stip., Ex. 11 (2003 gambling records) with Ex. 12 (2004 gambling records).) Specifically, Popovich prepared a "Gaming Record" that documented his daily gambling activities by indicating the name of the casino at which he gambled, the date, the total time he was in the casino, the combined value of the markers,⁵ and the games and tables at which he played. (See Trial Tr. at 72 – 73, 84, 121–23; Stip., Ex. 12 at 1105–06.) Popovich also prepared a "Win/Loss Record" that summarized the daily amounts of his winnings and losses by documenting the name of the casino at which he gambled, the date, the actual time spent gambling, and the combined value of markers.⁶ (See Trial Tr. at 73 – 74, 121–23, 126–27; Stip., Ex. 12 at 1109.) (See also Trial Tr. at 82 – 85 (providing that Popovich did not make an entry on the Win/Loss Record when he broke even).)

In addition, Popovich retained certain casino-generated records, such as the casino Markers and Redemption Vouchers, to substantiate his self-prepared records. (See Trial Tr. at 70 – 72, 75 – 76, 99–102; Stip., Confd'l Ex. 14.) The Markers included the casino name, the time, the date, the distinct "check number," the precise games ("BJ" or "FW"),⁷ and the tables where Popovich had gambled. (See, e.g., Stip., Confd'l Ex. 14 at 623, 917.) The Redemption Vouchers indicated when and how Popovich redeemed the Markers by providing the redemption date, referencing the Markers' distinct check numbers, and indicating whether Popovich redeemed a Marker by chip, cash, check, or wire transfer. (See Trial Tr. at 69 ; Stip., Confd'l Ex. 14 at 582, 606, 640, 769.) Popovich also obtained Trip History Reports from Horseshoe Hammond and Harrah's East Chicago at year's end that provided, among other things, estimates of the Markers' daily value, the time expended gambling, and the amounts won or lost. (See Trial Tr. at 62 – 66 ; see also, e.g., Stip., Ex. 9⁸ at 135.) Popovich, however, stated that he did not use the Trip History Reports in preparing the Gaming Record or the Win/Loss Record because he thought they were unreliable given their use of estimates. (See, e.g., Trial Tr. at 62 – 66.)

In May of 2004, Popovich established his own personal checking account that he used to conduct his gambling activities. (See Trial Tr. at 56 – 57 ; Stip., Confd'l Ex. 15 at 996–1023.) Up to that point, he had used Patricia's checking account to conduct his gambling activities. (See Trial Tr. at 53 – 54 ; Stip., Confd'l Ex. 22 at 57–59, Confd'l Ex. 16.) In September of 2004, Popovich and Patricia established a joint checking account for Popovich's gambling activities. (See Trial Tr. at 57 – 58 ; Stip., Confd'l Ex. 22 at 59, Confd'l Ex. 15 at 1024–1093.) Popovich also made several loans to Patricia, payable on demand, for both her personal and professional use in 2003 and 2004. (See Stip., Confd'l Ex. 22 at 75–77; Trial Tr. at 56, 85.) While the loans were not memorialized by promissory notes, the couple did keep a "sloppy record" of them by handwriting the check numbers, the amounts loaned and repaid, and the relevant dates on a sheet of paper that they kept in Patricia's safety deposit box.⁹ (See Stip., Confd'l Ex. 22 at 71–79; Trial Tr. at 56, 85, 87–89, 115–16.) The couple also included a line item named the "Popovich Gaming Account" on SPI's general ledger to document the amount of the demand loans and any repayments. (See Trial Tr. at 138, 176–77.) In mid-October 2004, Popovich's line of credit at the Horseshoe Hammond casino was suspended, and shortly thereafter, he stopped gambling entirely and moved onto another "deal." (See Trial Tr. at 59 – 60, 90–91.)

In August of 2005, Popovich filed his 2004 federal and state income tax returns separately from Patricia. (See Stip. ¶ 1, Confd'l Exs. 25–26.) Popovich attached a Schedule C, Profit or Loss From Business, to his federal return, stating that he was a professional gambler. (Stip., Confd'l Ex. 25 at 966.) After deducting his gambling losses of $6,442,000 from his gambling winnings of $6,846,200 on the Schedule C, Popovich reported a gambling profit of $44,200 for the 2004 tax...