Frank Gagliardi who won the California State Lottery in 1991 likes to gamble in casinos and likes to gamble a lot. He plays slot machines for hours, and sometimes days, on end.

He filed tax returns claiming all his W2-Gs as winnings and then $2.5 million in losses to offset those winnings. The IRS came calling, asking him to prove his losses. The IRS wanted a daily written log, as is suggested of gamblers.

Gagliardi had no such log but he did have ATM receipts, canceled checks and other evidence of his spending money in casinos. More importantly, he had enough money to hire a good legal team to go head to head vs. the IRS. After all, the taxes that the IRS was pursuing could be worth a million dollars.

In a rare upset, Gagliardi won his case versus the IRS. The judge accepted the fact that there's no way that Gagliardi could have possibly won money despite his absence of a written log.

I have investigated online to see if the IRS is appealing the decision but can't find that information. If this case stands, then it could effectively rewrite tax law and make it easier for gamblers to report losses and more difficult for the IRS to go after gamblers.

On a side note, I think Mr. Gagliardi is in for a rude awakening in a couple years, when his 20 years of installments from his lottery winnings stop, but that's another subject.

Here are a couple of links to articles online about this:

Sign On San Diego Article

ABA Journal Article

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