APPEAL FROM A FINAL DETERMINATION OF THE INDIANA DEPARTMENT
OF STATE REVENUE
ATTORNEYS FOR PETITIONER: JAMES K. GILDAY GILDAY &
ASSOCIATES, P.C. Indianapolis, IN
L. TURLEY PERZ ATTORNEY AT LAW Valparaiso, IN
ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR. ATTORNEY
GENERAL OF INDIANA WINSTON LIN DEPUTY ATTORNEY GENERAL
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.
FACTS AND PROCEDURAL
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.(See
Stip., Confd'l Ex. 22 at 14; Trial Tr. at 10-11.)
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.)
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.
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 credit 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,  and his wins and losses. (See
Resp't Trial Ex. 1.)
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.)
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,  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. (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).)
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"),  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. 9 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.)
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. (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.)
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 year. (Stip., Confd'l Ex. 25 at
966.) Popovich, however, carried forward a net operating loss
from his 2003 gambling activities that reduced his 2004
federal adjusted gross income to a negative $411, 031.
(Stip., Confd'l Ex. 25 at 964.) Popovich then used his
federal adjusted gross income as the starting point for
calculating his 2004 Indiana AGIT liability as required by
Indiana Code § 6-3-1-3.5(a), ultimately reporting his
2004 Indiana AGIT liability as zero. (Compare Stip.,
Confd'l Ex. 25 at 964 with Confd'l Ex. 26 at
989-90.) See also Ind. Code § 6-3-1- 3.5(a)
(2004) (amended 2005) (defining adjusted gross income under
IRC § 62 as the starting place for calculating an
individual's Indiana adjusted gross income).
two years later, the Department audited Popovich and
determined that he was not a professional gambler during the
2004 tax year. (See Stip. ¶ 2, Confd'l Ex.
20.) Accordingly, the Department disallowed his deduction of
gambling losses from gambling winnings, recalculated his
Indiana adjusted gross income, and determined that he owed
additional AGIT for the 2004 tax year. (See, e.g.,
Stip., Confd'l Ex. 1 at 1218.) Consequently, on January
28, 2008, the Department issued its 2004 Proposed Assessment
that imposed nearly $300, 000 in AGIT, interest, and
penalties. (See Stip. ¶ 3, Confd'l Ex. 3.)
On March 12, 2008, Popovich protested the Department's
2004 Proposed Assessment, but he conceded that the 2003 net
operating loss should not have been used to offset his 2004
gambling income. (Stip. ¶¶ 4, 8, Confd'l Ex.
5.) On August 3, 2010, the Department issued a Letter of
Findings denying the remainder of Popovich's protest.
(Stip. ¶ 5, Ex. 6.)
October 4, 2010, Popovich initiated this original tax appeal.
After resolving several interim matters, 
Popovich's appeal proceeded to trial on December 7, 2016.
The Court heard oral argument on March 23, 2017. Additional
facts will be supplied as necessary.
Court reviews the final determinations of the Department
de novo. Ind. Code § 6-8.1-5-1(i) (2017).
Accordingly, the Court is not bound by the evidence or the
issues presented at the administrative level. Horseshoe
Hammond, LLC v. Indiana Dep't of State Revenue, 865
N.E.2d 725, 727 (Ind. Tax Ct. 2007), review denied.
mentioned, Indiana Code § 6-3-1-3.5(a) defines adjusted
gross income under IRC § 62 as the starting place for
calculating an individual's Indiana adjusted gross
income. I.C. § 6-3-1-3.5(a). IRC § 62 states that
for individuals, the term "adjusted gross income"
means gross income minus, among other things, the type of
expense deductions at issue here: above-the-line deductions
related to a taxpayer's trade or business. See
I.R.C. §§ 62, 162, 183 (2004).
the question whether a taxpayer is engaged in the trade or
business of professional gambling is one of first impression
in Indiana, other jurisdictions have analyzed similar issues
by applying the specific facts in those cases to the two-part
test set forth in Commissioner of Internal Revenue v.
Groetzinger, 480 U.S. 23 (1987) and certain Treasury
Regulation factors. See, e.g., Moore v.
C.I.R., 102 T.C.M. (CCH) 74, 2011 WL 2929168, at *2-3
(T.C. 2011); McKeever v. C.I.R., 80 T.C.M. (CCH)
358, 2000 WL 1297710, at *8-19 (T.C. 2000); Free-Pacheco
v. U.S., 117 Fed.Cl. 228, 262-91 (Fed. Cl. 2014); Treas.
Reg. § 1.183-2(a)-(b) (2004). The Court finds these
federal authorities instructive and their reasoning
applicable to this matter because they interpret the Internal
Revenue Code provisions that Article 3 of Indiana's tax
code incorporates by reference. See I.C. §
6-3-1-3.5(a); see also F.A. Wilhelm Constr. Co. v.
Indiana Dep't of State Revenue, 586 N.E.2d 953, 955
(Ind. Tax Ct. 1992) (providing that the legislature's
reference to specific provisions of the Internal Revenue Code
indicates its intent that Indiana's AGIT laws be
interpreted in harmony with them). Accordingly, the Court
will apply the U.S. Supreme Court's two-part test that
requires a taxpayer claiming to be engaged in the business of
professional gambling to demonstrate that he is
"involved in the activity with continuity and regularity
and that [his] primary purpose for engaging in the
activity . . . [is] for income or profit." C.I.R. v.
Groetzinger, 480 U.S. 23, 35 (1987) (emphasis added).
Also, the Court finds instructive the federal Treasury
Regulations that set forth a non-exhaustive list of nine
factors to assist in determining whether a taxpayer is
engaged in an activity for income or profit:
(1) the manner in which the taxpayer carries on the activity;
(2) the expertise of the taxpayer or his advisors; (3) the
time and effort expended by the taxpayer in carrying on the
activity; (4) the expectation that assets used in the
activity may appreciate in value; (5) the success of the
taxpayer in carrying on other similar or dissimilar
activities; (6) the taxpayer's history of income or
losses with respect to the activity; (7) the amount of
occasional profits, if any, which are earned; (8) the
financial status of the taxpayer; and (9) the elements of
personal pleasure or recreation.
See Treas. Reg. § 1.183-2(a)-(b).
CONTINUITY AND REGULARITY
determine whether a taxpayer's gambling activity exhibits
the requisite continuity and regularity, a reviewing court
must examine the specific facts in the case.
Groetzinger, 480 U.S. at 36. See also,
e.g., Free-Pacheco, 117 Fed.Cl. at 263
(providing that "Groetzinger does not define
what constitutes continuous and regular activity, other than
to indicate that a 'sporadic activity, a hobby, or an
amusement diversion does not qualify'" (citation
omitted)). Courts generally have found, however, that a
taxpayer's gambling activity is continuous and regular
when the taxpayer gambles on a full-time basis and has no
other source of employment or livelihood. See, e.g.,
Groetzinger, 480 U.S. at 35; Bathalter v.
C.I.R., 54 T.C.M. (CCH) 902, 1987 WL 48826 (T.C. 1987).
instructs that a taxpayer's gambling activity is
continuous and regular when the taxpayer gambles on a
full-time basis. See Groetzinger, 480 U.S. at 35.
Popovich contends that his gambling was continuous and
regular because even though he did not gamble for 40 hours a
week, a typical full-time work schedule, he spent sufficient
time to be considered a full-time gambler. (See
Pet'r Post-Trial Br. ("Pet'r Br.") at
28-31; Pet'r Post-Trial Reply Br. ("Pet'r Reply
Br.") at 21-23.) Popovich presented evidence that shows:
1) he gambled a total of 60 days in 2004 (more than 1½
days per week annualized); 2) his gambling sessions lasted
5-6 hours each (totaling about 1, 000 hours annualized); and
3) he spent about 10 hours a week studying blackjack.
(See Pet'r Br. at 4, 11-12, 28-31 and
Pet'r Reply Br. at 21-23 (citing, e.g., Stip., Ex. 12 at
1105-06, Confd'l Ex. 22 at 71-72, 94-95; Trial Tr. at 27,
33, 85-86, 177-78).) And, Popovich supports his position by
referring to three federal cases interpreting the continuity
and regularity requirement. (See Pet'r Br. at
29-31 (citing Libutti v. C.I.R., 71 T.C.M. (CCH)
2343, 1996 WL 98762 (T.C. 1996); Storey v. C.I.R.,
103 T.C.M. (CCH) 1631, 2012 WL 1409273 (T.C. 2012);
Miller v. C.I.R., 76 T.C.M. 1174, 1998 WL 906689
(T.C. 1998), aff'd 208 F.3d 214 (6th Cir.
trial, Popovich presented his Gaming Record and his Win/Loss
Record to show that he gambled for a total of 60 days in 2004
and that each of his gambling sessions lasted about 5-6
hours. Popovich stated that he prepared these records on the
very day, or the day after, he gambled at a casino.
(See Trial Tr. at 70-72.) Popovich claimed that
these self-prepared records were complete and accurate not
just because they were contemporaneous, but also ...