Rev. Rul. 54-339

Advice is requested whether a taxpayer, not engaged in the trade or business of gambling, may deduct wagering losses to the extent of wagering gains in addition to claiming the optional standard deduction provided in section 23(aa) of the Internal Revenue Code.

Section 23(h) of the Code provides that in computing net income `Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.'

Until the enactment into law of the optional standard deduction and adjusted gross income concepts in 1944, this issue could not have arisen. However, the Individual Income Tax Act of 1944 added sections 22(n) and 23(aa) to the Code, the latter section providing that if a taxpayer elects to take the standard deduction he is not entitled to any additional deductions except those specified in section 22(n) of the Code.

Section 22(n), as amended, defines adjusted gross income as gross income minus trade or business deductions, expenses of travel and lodging in connection with employment, reimbursed expenses in connection with employment, deductions attributable to rents and royalties, certain deductions of life tenants and income beneficiaries of property, losses from the sale or exchange of property and the deduction allowed by section 23(ee) with respect to long-term capital gains.

Section 23 of the Code provides that in computing net income there shall be allowed as deductions:

*

(aa) OPTIONAL STANDARD DEDUCTION FOR INDIVIDUALS.-

(1) ALLOWANCE.-In the case of an individual, at his election a standard deduction as follows:

(A) Adjusted Gross Income $5,000 or More. * * *

(B) Adjusted Gross Income Less Than $5,000. * * *

(2) IN LIEU OF CERTAIN DEDUCTIONS AND CREDITS.-The standard deduction shall be in lieu of: (A) all deductions other than those which under section 22(n) are to be subtracted from gross income in computing adjusted gross income, * * *.

In the instant case the wagering losses do not come within the purview of section 22(n) of the Code and therefore cannot be deducted in the computation of adjusted gross income. Furthermore, such losses are not deductible from adjusted gross income in determining net income since the taxpayer has claimed the standard deduction, which is in lieu of all allowable deductions other than those enumerated in section 22(n) of the Code.

Accordingly, it is held that for Federal income tax purposes, all wagering gains must be included in gross income. Losses therefrom, by a taxpayer who is not in the trade or business of gambling, are not deductible in determining adjusted gross income as such losses do not come within the provisions of section 22(n) of the Internal Revenue Code relating to the determination of adjusted gross income. Nor are such losses deductible from adjusted gross income in determining net income where the taxpayer has elected to use the standard deduction.