Ted Wolkomir, a young Pittsburgh businessman, came to the conclusion in 1977 that he might be able to win money at the track. c
He thought he could make a profit palying trifectas, concentrating on long-priced horses and eliminating favorites, and so he embarked on a six-month test of his theories at the Meadows, a harness track. Wolkomir did not know it at the time, but he was attempting the most difficult of parlays: beating the races and beating the Internal Revenue Service.
Several nights a week, Wolkomir went to the track in pursuit of big trifecta payoffs. In 91 evenings he managed to hit 11 of them, averaging about 2,000 apiece, but that was not enough. When the season was over he had lost more than $6,000.
Although his handicapping may not have been astute, Wolkomir had done one thing perfectly during this period. To keep out of trouble with the IRS, he had maintained detailed records of his gambling transactions. Every night when he came home from the Meadows he totaled his wagers, wrapped together all his losing tickets and put them in a box for safe-keeping.
This was important because he had had to fill out tax forms when he collected all his big trifectas, and the IRS knew about his winnings. So when he submitted his year-end tax return, he listed $23,990 in winning and claimed a $23,990 deduction for gambling losses. (He couldn't claim all his $30,022 losses because gambling losses are deductible only to the extent of gambling winnings.)
"I had no doubt that I was going to be audited," Wolkomir said. "That's a standard occurence when you have a lot of miscellaneous expenses." What he didn't anticipate was the way the IRS would view his claims.
Gambling losses are, in fact, somewhat different from other types of deductions because there is no positive way to verify them. Records can be easily falsified; losing tickets can be picked off the ground. So IRS agents, who are inclined to believe that all taxpayers are crooks anyway, can feel free to disbelieve anything that a horseplayer claims.
When an IRS agent audited Wolkomir's return, he disallowed most of the losses -- even though their documentation was impeccable. He said he would give the horseplayer credit only for losses incurred on the nights when he had won trifectas, and presented Wolkomir with a bill for $6,064 in back taxes.
"Their rationale was totally beyond me," Wolkomir said. So he took his case to the IRS appellate division, confident of victory. Here the IRS rejected his claims again, but reduced his tax bill slightly. Wolkomir was incensed. "I refused to pay any money," he said.
So he took the final step-to the U.S. Tax Court in Philadelphia. Serving as his own lawyer, he explained that he has kept his records as accurately as a bettor possibly can. Even so, the government's lawyer argued that the records were not good enough.
The IRS maintained that Wolkomir had failed to heed Rev. Proc. 771-29, 1977-2 C.B. 538, not to mention Rg. Sec. 1.6001-1(a). Finally the lawyer argued Catch-22: Wolkomir had failed to show "that the losing tickets represented losing wagers by him." Since there is no way a horseplayer can ever prove he was the purchaser of a particular parimutuel ticket, no horseplayer can ever prove his losses.
Judge Howard A. Dawson Jr. reconized the difficulties involved in establishing race-track losses. "There is no ironclad formula for determining what records should be deemed sufficient to prove losses," he wrote in his decision last month. "But here we find the records adequate." He threw out all of the IRS claims against Wolkomir for back taxes.
Congratulated upon his victory, Wollkomir said, "I don't think that 'victory' is the proper word. The case was actually very clear-cut." To him this was a simple triumph of right over wrong. He is not an experienced justice in dealings with the Internal Revenue Service, he was scored the greatest longshot victory imaginable.