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201:]-income-producing factor in Baxter's gaming income. In fact, the Court finds that Baxter's income was derived entirely from his personal services and that the capital he used to finance his poker playing was merely a "tool of the trade." The money, once bet, would have produced no income without the application of Baxter's skills. it was Baxter's extraordinary poker skills which generated his substantial gaming income, not the intrinsic value of the money he bet.
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at the time). If, however, Baxter was not engaged in a trade or business, the income would not be "personal service income," and the maximum tax rate would be 70%. The tax law at the time defined "personal service income" to be "earned" income within the meaning of what was then section 911(b) of the
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Because of this case, gambling winnings in the United States can be treated as earned income for federal income tax purposes, depending on the facts and circumstances of the case. This means that in some cases expenses and losses can be deducted from gambling winnings in arriving at the net earnings
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of the gambling income of a professional gambler. Because of this case, gambling winnings in the United States can in certain cases be treated as business income for federal income tax purposes. This means that in some cases expenses and losses can be deducted from gambling winnings in arriving at
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The preliminary issue presented to the trial court was whether Baxter, as a professional gambler, was engaged in a "trade or business" for federal income tax purposes. If Baxter was engaged in a trade or business, then his income would be taxed at what was then a maximum rate of 50% for "personal
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The trial court analyzed two alternative tests for determining whether an activity constitutes a "trade or business" for federal income tax purposes: the "goods and services" test, and the "facts and circumstances" test. The government conceded that if the "facts and circumstances" test was the
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William E. (Billy) Baxter, Jr., had been a gambler since the age of fourteen. For the tax years in question (years 1978 through 1981), both Baxter and the government agreed that Baxter was engaged in the activity of gambling as a "professional gambler." The parties agreed that Baxter devoted a
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Internal
Revenue Code. The court noted that "if Baxter derived his gaming income actively from his expenditure of time, energy, and skill rather than passively from his use of his property, then his gaming income constitutes 'earned income'."
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judge who heard the case ruled in favor of Baxter, declaring "I find the government's argument to be ludicrous. I just wish you had some money and could sit down with Mr. Baxter and play some poker."
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appropriate test, then Baxter's activity would constitute a trade or business, resulting in the lower tax rate and a lower tax liability.
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To Baxter, the 50% versus 70% maximum marginal tax rates meant the difference of $ 178,000. At first, Baxter refused to pay. His
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the net earnings from self-employment, and that winnings can be placed into retirement funds.
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from self-employment, and that winnings can be placed into retirement funds.
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The trial court ruled in favor of Baxter's claims for tax refunds.
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substantial amount of time to his gambling activity, which was
248:(UIGEA). Opponents of the UIGEA argue that because poker is a
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United States
District Court for the District of Nevada cases
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have similarly declared poker to be a game of skill. In the
427:'Skill vs. Chance' Battle Looms in Pennsylvania Poker Case
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the Court finds that capital was not a meterial [
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United States
District Court for the District of Nevada
445:, 633 F. Supp. 912 (D. Nev. 1986) is available from:
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GeneBromberg.com May 1, 2007 Accessed 1 March 2008.
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496:United States taxation and revenue case law
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136:who later went on to win seven
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486:Gambling in the United States
414:This Guy Is A U.S. Senator?
226:United States Supreme Court
161:Certified Public Accountant
143:. He was inducted into the
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403:, 633 F. Supp. at 918-19.
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324:633 F. Supp. 912
443:Baxter v. United States
378:. Cardplayer Magazine.
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242:Baxter v. United States
21:Baxter v. United States
501:Poker in North America
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81:; 86-1 U.S. Tax Cas. (
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169:Internal Revenue Code
138:World Series of Poker
66:Civ. No. R-84-463 BRT
374:(August 9, 2005).
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279:See also
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