Collins v. Commissioner

3 F.3d 625 (2nd Cir. 1993)

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Nature of the Case

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Facts

D was employed as a ticket vendor and computer operator at an Off-Track Betting (OTB) parlor. OTB does not extend credit to those making bets at its parlors. It also has a strict policy against employee betting on horse races. D placed bets on his behalf on his computer without paying for them. Until July 17, 1988, he had always managed to cover those bets without detection. On that date, D decided he 'would like some money' and on credit punched up a total of $80,280 in betting tickets. D kept losing and doubling the next set of bets to cover the prior losses. D lost all of these races and now owed OTB $ 26,280. D gambled $25,500 of OTB's money on the ninth race. This time his horse came in third, and d won back $8,925. He then bet $28,500 in the last or tenth race and finally picked a winner. The winning horse paid him $33,250. After this race, D was behind $38,105 for the day. The police were called. D pled guilty to one count of grand larceny. Because D lost his first seven bets on July 17, his wagers increased the payout for the winners of each of those races. By contrast, Ds' last two winning bets reduced the funds available to pay off legitimate bettors who had paid cash for their winning tickets. The OTB insurer obtained a judgment against D for $ 36,601.94. D believed his illegal activities did not have any tax consequences, but the IRS disagreed. It determined that D owed $9,376 in additional taxes for his failure to report $38,136 in 'gross income from gambling winnings. D petitioned the Tax Court. The IRS stated that D received his $38,136 in 'gross income from theft and embezzlement. The IRS held that the $80,280 in unpaid bets constituted theft or embezzlement income. It found that D realized economic value from the betting tickets and that D had sufficient control over the stolen property. The IRS took the gross amount and deducted the money returned to OTB for a balance of $38,105 and held that to be income of which he stole thus producing the $9,376 in tax deficiency. The court agreed and found D liable. D appealed.