Boneparte filed a timely petition in response to the notices of deficiency for 2012 and 2013. He resided in New Jersey when he filed the petition. The IRS answered.

Then, on June 11, 2015, the IRS wrote a letter to Boneparte stating that it had changed its position from that in the notice of deficiency for 2013 and that the new position was reflected in an examination report attached to the letter. In its *219 posttrial brief, the IRS confirmed that the examination report reflects its position in this case with respect to the amount of the deficiency for 2013.

The examination report for 2013 stated that Boneparte had a deficiency of $15,835. This amount resulted from various adjustments to Boneparte's return shown in the examination report. The examination report stated that the IRS had disallowed the $85,783 business-expense deduction that Boneparte claimed on his Schedule C. Boneparte2017 Tax Ct. Memo LEXIS 193">*216 contests this adjustment. See infra part 1 for the discussion of this issue. The examination report stated that the $2,916 in income that Boneparte reported for state tax refunds should be reduced by $913; that is, from $2,916 to $2,003. Neither side contests that the correct amount is $2,003. Because of the adjustments described so far, Boneparte's adjusted gross income, as reflected in the examination report, became $104,616. This increase in Boneparte's adjusted gross income in turn resulted in a computational adjustment to his medical-expense deduction. The deduction was reduced from the $6,137 claimed to zero.

The examination report for 2013 made a "0.00"-dollar adjustment (i.e., no adjustment) to the $12,500 that Boneparte had claimed as an itemized deduction for gambling. The examination report stated no position and made no adjustment *220 regarding the $12,500 in gambling income Boneparte reported on line 21 of his Form 1040.

The examination report for 2013 stated no position regarding the $10,000 in gross receipts that Boneparte reported on his Schedule C or the $10,000 in "Returns and Allowances" on the schedule. The examination report did not take the position that Boneparte2017 Tax Ct. Memo LEXIS 193">*217 was required to include the $10,000 in gross receipts in his gross income in addition to the $12,500 in gambling income that he reported on line 21 of his Form 1040. For his part, Boneparte does not concede that the $10,000 he reported as gross receipts on his Schedule C is includable in his gross income in addition to the $12,500 that he reported as gambling income on line 21 of his Form 1040.

The examination report made no adjustment to the $3,304 real-estate-tax deduction Boneparte claimed on Schedule A.

Unlike the notice of deficiency for 2013, the examination report did not find a deficiency based on (1) Boneparte's alleged failure to report $10,753 in taxable retirement distributions, $10 in interest, and $82,350 in wages, and (2) his entitlement to an unclaimed personal-exemption deduction. Because the IRS's litigating position is that the computations in the examination report are correct, *221 we conclude that the IRS has retracted these two determinations that had been reflected in the notice of deficiency for 2013.

The examination report calculated Boneparte's taxable income as $79,609. The examination report stated that Boneparte is liable for a section 6651(a)(1) addition to tax of $1,886 and2017 Tax Ct. Memo LEXIS 193">*218 a section 6662 penalty of $3,167 for 2013.

In its brief, the IRS states that its litigating position regarding the amount of the 2013 deficiency is reflected in the computations in the examination report. The IRS brief states that the IRS no longer asserts any additions to tax or penalties for 2013. This statement thus withdraws any assertion by the IRS for 2013 regarding the section 6651(a)(1) addition to tax (which was mentioned in the notice of deficiency and the examination report), the section 6651(a)(2) addition to tax (which was mentioned in the notice of deficiency), the section 6654 addition to tax (which was mentioned in the notice of deficiency), and the section 6662 penalty (which was mentioned in the notice of deficiency and the examination report).

The IRS's brief also takes the position that the $18,000 itemized deduction for gambling losses that Boneparte claimed for tax year 2012 should be allowed to the extent of $12,839. This is a concession compared with the notice of deficiency for 2012, which had determined that the amount of the deduction was zero.

*222 Because of the changing positions of the IRS with respect to the amounts of the deficiencies, we summarize the IRS's positions with respect to the relevant line items of the returns in the2017 Tax Ct. Memo LEXIS 193">*219 following table:

^aNeither party contends that the amounts reported as gross receipts on the Schedule C should be included in income in addition to the gambling income reported separately on the Form 1040.

^bThis is an amount that will be computed or recomputed under Rule 155.

*224 Five issues remain to be decided: (1) whether Boneparte was a professional gambler and therefore2017 Tax Ct. Memo LEXIS 193">*220 entitled to nonwagering gambling expense deductions of $89,116 and $85,783 for 2012 and 2013, respectively, (2) whether he is entitled to an itemized deduction of $18,000 for losses from wagering transactions for 2012, (3) whether he is entitled to a $3,592 deduction for the payment of real-estate taxes for 2012, (4) whether he is liable for an addition to tax under section 6651(a)(1) for 2012, and (5) whether he is liable for an accuracy-related penalty under section 6662(a) for 2012.

The IRS disallowed the deductions Boneparte claimed on Schedule C for the nonwagering expenses of being a professional gambler (i.e., the expenses other than wagering costs). These expenses, he reported, were $89,116 in 2012 and $85,783 in 2013. Boneparte may deduct these expenses only if he is a professional gambler. See infra part 1.j.

To be a professional gambler, the taxpayer must engage in gambling for profit. Sec. 183(a), (b), and (c); sec. 1.183-2(a), Income Tax Regs.; Commissioner v. Groetzinger, 480 U.S. 23">480 U.S. 23, 480 U.S. 23">35, 107 S. Ct. 980">107 S. Ct. 980, 94 L. Ed. 2d 25">94 L. Ed. 2d 25 (1987). Section 1.183-2(b), Income Tax Regs., *225 provides nine factors to consider when determining whether an activity is engaged in for profit: (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisers;2017 Tax Ct. Memo LEXIS 193">*221 (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) elements of personal pleasure or recreation. See, e.g., Hendricks v. Commissioner, 32 F.3d 94">32 F.3d 94, 32 F.3d 94">98 (4th Cir. 1994), aff'gT.C Memo. 1993-396. These factors are not exclusive, and no one factor is dispositive. Sec. 1.183-2(b), Income Tax Regs.; Hendricks v. Commissioner, 32 F.3d 94">32 F.3d at 98. As explained below, we find on a preponderance of evidence that Boneparte was not a professional gambler for the years 2012 and 2013.⁵

The manner in which the taxpayer carries on an activity may indicate a profit motive if the taxpayer acts in a "businesslike manner and maintains complete and accurate books and records", conducts the activity "in a manner substantially similar" to profitable activities of a similar nature, or attempts to improve the activity's profitability by adopting new operating methods and techniques and abandoning unprofitable methods. Sec. 1.183-2(b)(1), Income Tax Regs.

If a gambler2017 Tax Ct. Memo LEXIS 193">*222 kept detailed records of the gambling activity, that might support the gambler's argument that he or she had a profit motive. A gambler might keep records in order to test the success of a particular technique. Boneparte was not such a gambler. He did not keep any records other than the win/loss statements provided by the casinos. These statements generally state only the aggregate amount won or lost during the year at a particular casino. This factor weighs against Boneparte. See Carmody v. Commissioner, T.C. Memo 2016-225, *20-*23 (holding that taxpayer was not engaged in horse-racing activity for profit when he did not have a written business plan, did not use spreadsheets and invoices to minimize losses or generate profits, and did not engage in any meaningful financial management with respect to his horse-racing activity).

Preparation for an activity by extensive study of its accepted business, economic, and scientific practices, or consultation with industry experts, may indicate a profit motive where the taxpayer carries on the activity in accordance with such practices. Engdahl v. Commissioner, 72 T.C. 659">72 T.C. 659, 72 T.C. 659">668 (1979); sec. 1.183-2(b)(2), Income Tax Regs. Efforts to gain experience and a willingness to follow expert advice may also indicate a profit motive. Dworshak v. Commissioner, T.C. Memo. 2004-249, slip op. at 10-11.

2017 Tax Ct. Memo LEXIS 193">*223 Boneparte testified that he spent time with a friend who also gambled frequently. He testified that this friend helped him learn about gambling but that they also "went [all] over and partied". Boneparte also testified that he purchased books and videos on how to win playing slot machines and baccarat.

Boneparte's testimony is credible. However, the mere fact that Boneparte tried to learn how to win at slot machines and baccarat does not necessarily suggest that he played these games in order to make a profit. It is also consistent with playing the games for recreation or, alternatively, trying to limit his losses. We are not persuaded that Boneparte's consultations with his friend or his buying books and videos showed that he intended to have net gains. This factor weighs against Boneparte.

The time and effort devoted to an activity may indicate a profit motive, particularly if the activity does not include substantial recreational aspects. Sec. 1.183-2(b)(3), Income Tax Regs. A taxpayer's withdrawal from another occupation to devote most of his or her energies to the activity may be evidence that the activity is engaged in for profit. Id.

Boneparte's2017 Tax Ct. Memo LEXIS 193">*224 primary activity was working full-time as a "tunnel bridge agent" with the Port Authority. Although he gambled frequently, he gambled only in his spare time. Furthermore, he derived a recreational benefit from his gambling activity. This is why he continued to gamble despite the lack of profit. This factor weighs against Boneparte.

This factor is neutral and is not applicable in this case, as Boneparte's gambling does not involve holding assets.

Previous experience in similar activities and successful conversion of unprofitable to profitable enterprises may indicate a profit motive. Id.subpara. (5).

*229 Boneparte has no history of success with business activities besides working as a "tunnel bridge agent". Working as a tunnel bridge agent is not necessarily helpful in preparing someone for a successful career as a gambler. This factor weighs against Boneparte.

A series of years of net income would be a strong indication that the activity is engaged in for profit. Id. subpara. (6)2017 Tax Ct. Memo LEXIS 193">*225 . Year after year of losses, however, may indicate a lack of profit motive. Id.

Boneparte has a history of gambling losses. Nothing in the record indicates that he has ever profited from gambling. Boneparte did not make a profit in 2009, 2010, 2011, 2012, or 2013. He had net wagering losses of $14,887 in 2012 and $12,609 in 2013. Boneparte's history of sustained losses is indicative of a lack of profit objective. This factor weighs against Boneparte.

The amount of profits earned in relation to the amount of losses incurred and the amount of the investment may indicate a profit motive. Id. subpara. (7). Earning of substantial profits, even if the profits are sporadic, generally indicates a profit motive if the taxpayer's investment or losses are relatively small. Id. The mere opportunity to earn a substantial profit may also indicate a profit motive. Id.

*230 In contrast, an occasional small profit generally indicates a lack of profit motive if the taxpayer's investment or losses are relatively large. Id.

The record shows Boneparte lost money gambling over several years and did not earn even sporadic profits. This factor2017 Tax Ct. Memo LEXIS 193">*226 weighs against Boneparte.

Having substantial income from other sources may indicate that the activity in question is not engaged in for profit, especially where losses from the activity generate substantial tax benefits or where there are recreational elements involved. Id. subpara. (8).

Boneparte earned $78,000 as an employee of the Port Authority during 2012, and $82,000 as an employee of the Port Authority during 2013. This is substantial income from another source. If he is permitted to deduct his gambling-related expenses from his Port Authority income, his taxable income will be significantly reduced. The combined recreational nature of gambling and the substantial tax benefit he would gain from being permitted to deduct his gambling-related expenses weigh against a profit motive. See Moore v. Comm'r, T.C. Memo 2011-173 (holding that taxpayer's financial status did not indicate profit motive when he derived bulk of income from employment outside of gambling). This factor weighs against Boneparte.

The presence of personal or recreational elements in an activity may indicate the absence of a profit motive. Sec. 1.183-2(b)(9), Income Tax Regs. The mere presence of a2017 Tax Ct. Memo LEXIS 193">*227 personal or recreational aspect, however, does not necessarily preclude a profit motive. Id.

Boneparte's gambling involved elements of personal pleasure and recreation. He testified that he traveled and "partied" with a friend in conjunction with his gambling. This factor weighs against Boneparte.

None of the factors weighs in favor of the finding of a profit motive, and all relevant factors weigh against the finding of a profit motive. We conclude on a preponderance of evidence that Boneparte did not engage in his gambling activity for profit. This conclusion, combined with the conclusions in other portions of this opinion, means that Boneparte cannot deduct his nonwagering expenses of gambling. More specifically, for 2012:

• Boneparte's gross income from gambling is $18,000. See 480 U.S. 23">supra p. 23.

• Boneparte is entitled to a section 165(d) deduction of $18,000. See infra part 2.

*232 ! Boneparte's section 183(b)(1) deduction is $18,000, identical to his section 165(d) deduction.

• Therefore, his section 183(b)(2) deduction is limited to the gross income derived from gambling, $18,000, minus the section 183(b)(1) deduction, $18,000, which is zero.

• No further deduction for gambling expenses is allowed. Seesec. 183(a).

A taxpayer who is not in the trade or business of gambling deducts losses from wagering transactions as an itemized deduction, but only to the extent of gains from wagering transactions. Sec. 165(d); sec. 1.165-10, Income Tax Regs.; see also Norgaard v. Commissioner, 939 F.2d 874">939 F.2d 874, 939 F.2d 874">878 (9th Cir. 1991), aff'g in part, rev'g in part on other groundsT.C. Memo. 1989-390; Briseno v. Commissioner, T.C. Memo 2009-67.

On his 2012 tax return, Boneparte reported losses from wagering transactions of $18,000 as an itemized deduction on his Schedule A and gains from wagering transactions of $18,000 on line 21 of his Form 1040. The IRS's position is that Boneparte should include the $18,000 of gains in his gross income, but that the itemized deduction should be only $12,839.

Recall that the record contains statements from 14 casinos regarding Boneparte's wagering activity for the year 2012. We found that the statements showed an aggregate loss from2017 Tax Ct. Memo LEXIS 193">*229 wagering activity for the year of $14,887. We rejected the IRS's interpretation of one of the statements, under which the *234 aggregate losses would have been $12,839. This is how it arrived at its position that the itemized deduction should be $12,839.

In formulating its position that Boneparte's itemized wagering-loss deduction for 2012 was only $12,839, the IRS relied entirely on the statements from the 14 casinos. The IRS does not allege that Boneparte gambled at casinos other than those 14. Neither does Boneparte. We therefore accept as true the proposition that the 14 casino statements reflect all of Boneparte's wagering activities in 2012. This proposition helps us determine the amount of Boneparte's losses from wagering transactions.

Boneparte's wagering transactions for the year fall into two groups: those for which there was a gain and those for which there was a loss. As we explained at the beginning of the opinion, a casual gambler's gross income includes the gains from wagering transactions for which there was a gain. This amount is also the gain from wagering transactions within the meaning of section 165(d). The parties have agreed that the correct inclusion in Boneparte's gross income2017 Tax Ct. Memo LEXIS 193">*230 is $18,000. This is the amount Boneparte reported on his return, and the IRS did not adjust it. Thus, the parties have agreed that Boneparte's gains from his wagering transactions for which there were gains for 2012 equal $18,000. The 14 casino statements include the amounts of both (1) gains from wagering transactions for *235 which there was a gain and (2) losses from wagering transactions for which there was a loss. Therefore the aggregate loss from all 14 statements, -$14,887, equals the gains from wagering transactions for which there is a gain minus the losses from wagering transactions for which there was a loss. It is not, as the IRS assumes, just the losses from wagering transactions for which there was a loss.

As explained above, two propositions are true: (1) the gains from wagering transactions for which there was gain total $18,000, and (2) the gains from wagering transactions for which there was a gain minus the losses from wagering transactions for which there was a loss equal -$14,887. It mathematically follows from these two propositions that the losses from wagering transactions for which there is a loss equal -$32,887 (i.e., $18,000 ! $32,887 = -$14,887). Boneparte is2017 Tax Ct. Memo LEXIS 193">*231 entitled to a section 165(d) deduction equal to this amount to the extent of gains from wagering transactions. This gain is $18,000. Therefore his section 165(d) deduction is $18,000.

We hold that Boneparte is entitled to a Schedule A deduction of $18,000 for wagering losses for the 2012 year.

Boneparte claimed a deduction of $3,592 for real-estate taxes for the 2012 tax year. The IRS disallowed this deduction in the notice of deficiency for the *236 2012 tax year. On brief, the IRS contends that Boneparte failed to substantiate these expenses. Boneparte did not address these expenses at trial or in his opening posttrial brief. In his answering posttrial brief, Boneparte finally said this about the expenses:

Schedule a deduction for real estate taxes, $3,592. Superstorm Sandy destroyed a lot of my actual receipts as they became water-logged. I also informed Respondent that my younger sister married and moved from South Carolina to Arkansas. I paid her $900 a month for the mortgage and $1200 in property tax for six months while she relocated and found new employment. I dropped the real estate tax and will charge it as N.O.L. later.

The IRS determined that Boneparte is liable for the section 6651(a)(1) addition to tax for the 2012 tax year. Section 6651(a)(1) imposes an addition to tax for failure to file a tax return by its filing deadline (determined by taking into account any extensions of that deadline) unless the taxpayer can establish that the failure to file is due to reasonable cause and not due to willful neglect. The section 6651(a)(1) addition to tax is 5% of the amount required to be shown as tax *237 on the return for each month the failure to file continues, not to exceed 25% in the aggregate. Sec. 6651(a)(1), (b)(1). The IRS determined an addition to tax corresponding to Boneparte's return being more than one month late. Therefore it determined that he is liable for an amount equal to 5% of the amount required to be shown as tax for the failure to file the return by April 15, 2013, and another 5% for the failure to file the return by May 15, 2013.

The IRS bears the burden2017 Tax Ct. Memo LEXIS 193">*233 of production for additions to tax determined under section 6651(a)(1). Seesec. 7491(c); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 438, 116 T.C. 438">446-447 (2001). The IRS satisfies its burden by producing sufficient evidence to establish that the taxpayer failed to timely file a required federal-income-tax return. See Wheeler v. Commissioner, 127 T.C. 200">127 T.C. 200, 127 T.C. 200">207-208 (2006), aff'd, 521 F.3d 1289">521 F.3d 1289 (10th Cir. 2008); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 447. Once the IRS has satisfied its burden of production, the taxpayer has the burden of proving that the return was not late, or if it was filed late, that the lateness was due to reasonable cause and not willful neglect. See Higbee v. Commissioner, 116 T.C. 438">116 T.C. 447.

Boneparte's tax return for 2012 was due on April 15, 2013. Seesec. 6072(a). The IRS produced the envelope that Boneparte used to mail the return. The date on the envelope was June 7, 2013. The IRS also produced the return *238 itself from its files. The face of the return has an IRS received stamp of June 7, 2013. Boneparte did not testify as to when he filed the return. Boneparte argues on brief that he had an incentive to file his 2012 return on time: He wanted to obtain a tax refund. He also argues on brief that an IRS date stamp is "unacceptable" proof of the date he mailed the return.

We hold that the date on the return's envelope and the IRS's date stamp satisfy the IRS's burden of producing evidence that Boneparte mailed his return late. And we2017 Tax Ct. Memo LEXIS 193">*234 find Boneparte has not proven the return was timely.⁷ We sustain the addition to tax under section 6651(a)(1).

The IRS determined that Boneparte is liable for the section 6662(a) accuracy-related penalty for the 2012 tax year. Section 6662(a) imposes a 20% penalty on any portion of an underpayment of tax that is attributable to any of the causes listed in section 6662(b). These causes include "[a]ny substantial *239 understatement of income tax" and "[n]egligence or disregard of rules or regulations". Sec. 6662(b)(1) and (2).

In general, an understatement of income tax is the correct amount of tax minus the tax actually shown on the return. Sec. 6662(d)(2)(A). An understatement of income tax is substantial if (1) the understatement exceeds 10% of the correct tax and (2) the understatement exceeds $5,000. Sec. 6662(d)(1)(A); sec. 1.6662-4(b)(1), Income Tax Regs. An understatement is reduced, however, by the portion attributable to the treatment of an item for which the taxpayer had "substantial authority". Sec. 6662(d)(2)(B)(i).

Computations by the parties under Rule 155 will confirm whether there was a substantial understatement of income tax on Boneparte's 2012 return. Boneparte does not argue he had "substantial authority" for any part of the understatement. Nor are we aware any of substantial authority2017 Tax Ct. Memo LEXIS 193">*235 for any part of the understatement. So no reduction will be made for the "substantial authority" exception.

Regardless of whether Boneparte's underpayment for the 2012 tax year is due to a substantial understatement of income tax, we hold that it is due to negligence. Negligence includes any failure to make a reasonable attempt to comply with the tax laws. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs. Negligence is strongly indicated where a taxpayer fails to make a reasonable *240 attempt to determine the correctness of a deduction, credit, or exclusion that would seem to a reasonable person to be "too good to be true". Sec. 1.6662-3(b)(1)(ii), Income Tax Regs. Negligence also includes a failure to maintain accurate records or to substantiate items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. Boneparte was not, in our view, a professional gambler. Many factors point to the fact that he was not one. Boneparte's trips to Atlantic City were therefore personal trips. The expenses of these trips were personal expenses. He should have realized it was too good to be true that he could avoid taxation on his Port Authority wages by making pleasure trips to Atlantic City. Furthermore, he failed to provide any evidence to substantiate his real-estate-tax payments.

Once the IRS has met its burden of producing evidence2017 Tax Ct. Memo LEXIS 193">*236 that a taxpayer is liable for a penalty, the taxpayer bears the burden of proving that the penalty is inappropriate because, for example, the taxpayer acted with reasonable cause and in good faith. Sec. 6664(c)(1) (providing that the penalty under section 6662(a) does not apply to any portion of the underpayment to the extent that the taxpayer had reasonable cause for that portion of the underpayment, and acted in good faith with respect to that portion); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 447. The existence of reasonable cause and good faith is determined on a case-by-case *241 basis, taking into account all pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The regulations provide the following guidance:

Generally, the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability. Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of all facts and circumstances, including the experience, knowledge, and education of the taxpayer.

We hold that Boneparte is liable for the accuracy-related penalty under section 6662(a) for 2012.

*242 In reaching our holdings, we have considered all arguments made, and, to the extent not mentioned, we conclude that they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.