The IRS usually persuades the courts that gamblers aren’t entitled to write-offs for travel to race tracks and casinos.
Still, the Tax Court doesn’t always side with the IRS. In one such example, the court was moved by the plight of Francisco Rivera, a pious gambler who may have known something about divine intervention.
Down in Juarez, Mexico, life was hard for Francisco, who suffered from poor vision, walked with a limp and had to make do running errands for $12 a week. Despite his problems, Francisco remained a pious person who attended church daily and made annual pilgrimages to pay homage to the Virgin of Guadalupe, patron saint of Mexicans.
The payoff came one summer night when, as Francisco later testified, he had a wondrous dream in which the Virgin Mary told him to buy Mexican National Lottery Ticket number 37281. An inspired Rivera scraped together $300 and turned for advice to his nephew, Alfonso Rivera, who lived in Texas and worked for a bank.
Using money that belonged to his uncle, the banker bought the entire sheet of 75 tickets for number 37281. The Virgin Mary had steered Francisco right. Number 37281 copped the grand prize of 32 million pesos, which at the time translated to $3 million.
Francisco collected his winnings and asked Alfonso to invest the $3 million. Most of the amount went into a bank account that the nephew opened in both of their names — a decision that proved to be decidedly unwise. The IRS got wind of the news and decided to cut itself in for about $1.6 million of the winnings.
The long reach of the IRS usually doesn’t extend south of the border. But it claimed the real winner was Alfonso, a United States citizen.
The court rated the case a toss-up. Nevertheless, it decided to buy Francisco’s story that he was the real winner and that the nephew owed nothing. The clincher was convincing corroboration furnished by the nephew’s "86-year-old grandmother, obviously closer than most to her Maker and face-to-face with her priest in the courtroom."
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 225 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.