82 T.C. 793">*793 Respondent determined a deficiency of $ 2,521.89 in petitioner's Federal income tax for the year 1978. The issue for decision is whether petitioner was in the trade or business of gambling during 1978. Resolution of this issue determines whether petitioner is subject to the minimum tax on items of tax preference under section 56. ¹

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto1984 U.S. Tax Ct. LEXIS 67">*70 are incorporated herein by this reference.

Petitioner Robert P. Groetzinger resided in Peoria, Ill., at the time he filed his petition in this case. Petitioner timely filed an individual income tax return for his 1978 taxable year.

Prior to February 1978, petitioner was employed in Peoria by Gerstenslager Co., a manufacturer of trucks and mobile libraries. He had worked there for about 20 years in sales and market research.

In February of 1978, petitioner's position with Gerstenslager Co. was terminated. Since then, he has been a full-time gambler, devoting virtually all his time to parimutuel wagering on dog races. Since losing his job, petitioner has had no profession or employment other than gambling. Aside from his gambling winnings, petitioner's only source of income has been interest, dividends, and sales of investments.

82 T.C. 793">*794 During 1978, petitioner devoted virtually all of his time to parimutuel wagering on dog races at tracks in Florida and Colorado. ² He also attended several horseraces. He went to the track 6 days a week, and attended 326 separate performances. On some days, he attended both matinee and evening performances.

1984 U.S. Tax Ct. LEXIS 67">*71 Petitioner typically arrived at the racetrack at about 1 p.m. and departed about 11:30 p.m. When not at the track, he spent a substantial amount of time studying racing forms, programs, and other materials in order to determine what bets to place. He did not bet on every race, and often modified his betting strategy at the track, based on the "odds" for a particular race. Petitioner devoted from 60 to 80 hours per week to these endeavors. ³

Petitioner never placed bets on behalf of others, sold tips to other bettors, or collected commissions for placing bets. He gambled solely for his own account.

Petitioner kept detailed records1984 U.S. Tax Ct. LEXIS 67">*72 of his wagering. At the end of each day, or sometimes after each performance, he recorded his net winnings or net losses in a journal.

In 1978, petitioner bet a total of $ 72,032. His total winnings were $ 70,000. His net loss from his gambling in 1978 was $ 2,032. Petitioner received income from other sources totaling $ 6,498. ⁴

On his Federal income tax return, petitioner reported as income only the $ 6,498 he received from nongambling sources. He did not deduct the $ 2,032 net loss from gambling in arriving at "adjusted gross income" on line 31 of his Form 1040. However, he did report the gambling loss on Schedule E of his Form 1040, entitled "Supplemental Income Schedule." Petitioner claimed no1984 U.S. Tax Ct. LEXIS 67">*73 itemized deductions, but rather computed his tax liability from the tax tables, which allowed him a $ 2,200 "zero bracket amount."

82 T.C. 793">*795 In his notice of deficiency, respondent determined that petitioner's $ 70,000 of gambling winnings constitute additional income, and that $ 70,000 of petitioner's gambling losses, ⁵ while deductible to the extent of petitioner's gambling winnings, constitute itemized deductions (deductions from adjusted gross income). The effect of this determination was to subject petitioner to the minimum tax on "items of tax preference" under section 56. Respondent computed a minimum tax in the amount of $ 2,141.89, resulting in the deficiency herein. ⁶

1984 U.S. Tax Ct. LEXIS 67">*74 OPINION

The sole issue presented for decision is whether petitioner's gambling activities constitute a "trade or business" within the meaning of section 62(1). If so, his gambling losses are deductible from gross income in arriving at adjusted gross income, ⁷ and as such do not constitute "items of tax preference" for the purposes of the minimum tax imposed by section 56. ⁸1984 U.S. Tax Ct. LEXIS 67">*76 It is not disputed that petitioner during 1978 was engaged full time in parimutuel wagering on dog races, had no other employment during that period, gambled solely for his own account, and devoted an extraordinary amount of time and effort to his gambling with a view to earning a living from such activity. In Ditunno v. Commissioner, 80 T.C. 362">80 T.C. 362 (1983), appeal dismissed (6th Cir., Sept. 15, 1983), we held on nearly identical facts that such a full-time gambler was in the trade or business of gambling, so that his losses were not items of tax 82 T.C. 793">*796 preference for the purposes of computing the minimum tax. ⁹ In Ditunno, we rejected the proposition that to be engaged in a trade or business, one must hold himself out to others as offering goods or services. ¹⁰ Rather, 1984 U.S. Tax Ct. LEXIS 67">*75 after thoroughly reviewing the extensive case law in this area, we concluded: "The proper test of whether an individual is carrying on a trade or business requires an examination of all the facts involved in each case." 80 T.C. 362">Ditunno v. Commissioner, supra at 366-367.

Factually this case is fundamentally indistinguishable from Ditunno and an examination of all the facts in this case leads us to conclude that, during 1978, petitioner was also in the trade or business of gambling. However, the U.S. Court of Appeals for the Second Circuit recently1984 U.S. Tax Ct. LEXIS 67">*77 rejected the position we adopted in Ditunno. In Gajewski v. Commissioner, 723 F.2d 1062">723 F.2d 1062 (2d Cir. 1983), revg. and remanding a Memorandum Opinion of this Court, the Court held that in order to be engaged in a trade or business, "a taxpayer must, as a minimum, have held himself out to others as offering goods or services." Thus, the Court found a full-time gambler, whose extensive parimutuel wagering on jai-alai provided his only income, not to be engaged in a trade or business because he gambled solely for his own account and did not hold himself out to others as offering goods or services.

We must decide in this case whether to adhere to our Court-reviewed decision in Ditunno or modify our position in accordance with the Second Circuit's ruling in Gajewski. ¹¹1984 U.S. Tax Ct. LEXIS 67">*78 We note in passing that this is unlikely to be the last word on this 82 T.C. 793">*797 issue, as appeals are pending in two other similar cases. ¹² With all due respect to the Second Circuit, whose opinion we have considered thoroughly, we are not persuaded that the case law justifies a departure from the position we announced so recently in Ditunno. ¹³

Our reasons for rejecting the "goods or services" test are explained thoroughly in our opinion in Ditunno, and we see no need to repeat that discussion here. However, in light of the decision in Gajewski, we feel compelled to examine several points raised by the Second Circuit and articulate the reasoning that leads us to a different conclusion. In addition, we think it is appropriate at this juncture to discuss more thoroughly certain cases involving active traders of securities, which we find to be strong support for our position.

The crux of the issue is whether a passage in Justice Frankfurter's concurring opinion in Deputy v. du Pont, 308 U.S. 488">308 U.S. 488, 308 U.S. 488">499 (1940), in which he described a trade or business as "holding one's self out to others as engaged in the selling of goods and services," should be regarded as establishing an absolute requirement that must be satisfied in order for a taxpayer to be engaged in a trade or business. 1984 U.S. Tax Ct. LEXIS 67">*79 ¹⁴ In answering this question in the affirmative, the Second Circuit accorded little weight to the Supreme Court's decision in Higgins v. Commissioner, 312 U.S. 212">312 U.S. 212 (1941), in which the Court said "To determine whether the activities of a taxpayer are 'carrying on a business' requires an examination of the facts in each case." The Second Circuit did not attempt to reconcile its adoption of the "goods or services" test with Higgins and other contemporaneous decisions of the Court involving the trade or business issue.

In Deputy v. du 308 U.S. 488">Pont, supra, the case in which Justice Frankfurter's concurring opinion appeared, the majority1984 U.S. Tax Ct. LEXIS 67">*80 did not even address the question of whether a trade or business existed. ¹⁵1984 U.S. Tax Ct. LEXIS 67">*81 However, only 1 year later, when squarely faced 82 T.C. 793">*798 with the meaning of "trade or business," the Court ignored the "goods or services" requirement proposed by Justice Frankfurter and announced the more general factual approach quoted above. 312 U.S. 212">Higgins v. Commissioner, supra at 217. In Higgins, the Court was faced with various lower court interpretations of the meaning of "trade or business," in addition to Justice Frankfurter's "goods or services" test, but apparently found none of them to be adequate. ¹⁶ See 80 T.C. 362">Ditunno v. Commissioner, supra at 367-368. Shortly thereafter, the Supreme Court reiterated the overall factual approach in United States v. Pyne, 313 U.S. 127">313 U.S. 127 (1941), and City Bank Farmers Trust Co. v. Helvering, 313 U.S. 121">313 U.S. 121 (1941), and did not mention the "goods or services" test.

Our rejection of the "goods or services" requirement in Ditunno followed from our conclusion that, given this judicial context, Higgins is properly viewed as the controlling Supreme Court precedent on the trade or business issue. See 80 T.C. 362">Ditunno v. Commissioner, supra at 366-369.1984 U.S. Tax Ct. LEXIS 67">*82 In Higgins, the Court was faced with the task of defining the contours of the "trade or business" concept in the face of varying interpretations by the lower courts. In announcing a review of all the facts approach, the Court implicitly rejected various other attempts, including that of Justice Frankfurter, to formulate a precise definition of the term. The Second Circuit, however, in adopting the "goods or services" requirement in Gajewski, did not attempt to reconcile that result with Higgins and other decisions of the Supreme Court that prescribe the more general facts approach. Rather, the Court in Gajewski embraced Justice Frankfurter's proposed test and based its decision primarily on lower court decisions which have cited the concurring opinion in Deputy v. du Pont. ¹⁷ While we do not dispute the importance 82 T.C. 793">*799 of the lower court decisions which have shaped the meaning of "trade or business," we think the Second Circuit's approach unduly discounts the importance of these contemporary Supreme Court decisions in evaluating the cogency of Justice Frankfurter's proposed test.

1984 U.S. Tax Ct. LEXIS 67">*83 Although the Court in Gajewski stated that "A number of other courts have also implicitly or explicitly adopted the 'goods or services' requirement," the attempt to support this proposition with specific examples is not persuasive. An examination of the case law reveals that, while Justice Frankfurter's language has been cited frequently as a factor to be considered in resolving the "trade or business" question, there are few instances where the "goods or services" notion has been adopted unambiguously as an absolute requirement or, in the words of the Second Circuit, a "minimum standard." ¹⁸1984 U.S. Tax Ct. LEXIS 67">*85 Few courts, in fact, have treated the issue with any consistency, thus calling into question some of the cases relied on in Gajewski and leaving to conjecture how the question here presented would be resolved in other circuits. ¹⁹ We note, however, that the Seventh Circuit, to which this case is appealable, has applied the facts and circumstances test when 82 T.C. 793">*800 faced with the "trade or business" issue. See Beck v. Commissioner, 179 F.2d 688">179 F.2d 688 (7th Cir. 1950); Simonsen Industries v. Commissioner, 179 F.2d 688">179 F.2d 688 (7th Cir. 1950);1984 U.S. Tax Ct. LEXIS 67">*84 Simonsen Industries v. Commissioner, 243 F.2d 407">243 F.2d 407 (7th Cir. 1957); International Trading Co. v. Commissioner, 275 F.2d 578">275 F.2d 578 (7th Cir. 1960). But see Hope School v. United States, 612 F.2d 298">612 F.2d 298 (7th Cir. 1980) (citing Deputy v. du Pont without discussion but appearing to apply a facts and circumstances approach).

1984 U.S. Tax Ct. LEXIS 67">*86 The Second Circuit in Gajewski criticizes the "facts and circumstances" approach as not describing a standard, and refers to it as a "nontest." Inherent in this argument is the assumption that the term "trade or business" is susceptible of a precise, determinative standard. However, throughout the 66 years the term has appeared in the Code, ²⁰ neither Congress nor the Commissioner has ever attempted to articulate such a standard, and the judicial history of the term "trade or business" reveals it to be an amorphous creature that has resisted attempts to define it with precision; what may be a decisive factor in one case is unimportant to another. We think that the very inability to distill from the case law a precise test or definition of a "trade or business" supports our conclusion that the question is inherently one of fact, as the Supreme Court announced in Higgins. As one court stated: "The term 'trade or business' appears in the Tax Code in over sixty places and by necessity must obtain of a functional definition according to the context in which the question arises." Steffens v. Commissioner, 707 F.2d 478">707 F.2d 478, 707 F.2d 478">482 (11th Cir. 1983).

1984 U.S. Tax Ct. LEXIS 67">*87 We also find support for our position in a line of cases which establishes that trading securities for one's own account can constitute a trade or business if the trading is sufficiently frequent and substantial. While we alluded to some of these cases in Ditunno, we believe that their close similarity to the instant case warrants further discussion.

It has been clear since Higgins that a mere investor is not engaged in a trade or business by virtue of his holding of securities to produce income and capital appreciation. See also Whipple v. Commissioner, 373 U.S. 193">373 U.S. 193 (1963). Even prior to its decision in Higgins, however, the Court indicated that a 82 T.C. 793">*801 taxpayer who "devotes the major portion of his time to speculating on the stock exchange may treat losses thus incurred as having been sustained in the course of a trade or business." Snyder v. Commissioner, 295 U.S. 134">295 U.S. 134 (1935) (emphasis added). Since Snyder, various courts have developed the distinction between "investing" and "speculating" or "trading." It is now clear that an active "trader," ²¹1984 U.S. Tax Ct. LEXIS 67">*89 who looks to profit from short-term market swings1984 U.S. Tax Ct. LEXIS 67">*88 and does not simply hold securities for long-term appreciation, will be deemed to be engaged in a trade or business provided that his trading is frequent and substantial. Fuld v. Commissioner, 139 F.2d 465">139 F.2d 465 (2d Cir. 1943); Commissioner v. Nubar, 185 F.2d 584">185 F.2d 584 (4th Cir. 1950); Levin v. United States, 220 Ct. Cl. 197">220 Ct. Cl. 197, 597 F.2d 760">597 F.2d 760 (1979). Compare Purvis v. Commissioner, 530 F.2d 1332">530 F.2d 1332 (9th Cir. 1976); Moller v. United States, 721 F.2d 810">721 F.2d 810 (Fed. Cir. 1983). ²² We previously described this distinction between "investing" and "trading" as follows:

in the former, securities are purchased to be held for capital appreciation and income, usually without regard to short-term developments that would influence the price of securities on the daily market. In a trading account, securities are bought and sold with reasonable frequency in an endeavor to catch the swings in the daily market movements and profit thereby on a short-term basis. [Liang v. Commissioner, 23 T.C. 1040">23 T.C. 1040, 23 T.C. 1040">1043 (1955).] ²³

The Court of Appeals for the Federal Circuit recently reviewed the law in the area and summarized:

In determining whether a taxpayer who manages his own investments is a trader, and thus engaged in a trade or business, relevant considerations are the taxpayer's investment intent, the nature of the income to be derived from the activity, and the frequency, extent, and regularity of the taxpayer's securities transactions. * * * [Moller v. United States, 721 F.2d 810">721 F.2d at 813.]

We are unable to discern any meaningful distinction between the so-called "active trader" of securities and the full-time gambler such as petitioner in this case. The essential nature of these activities is identical; to state1984 U.S. Tax Ct. LEXIS 67">*90 it simply, one gambles on stocks, the other on dogs. Both bet, or trade, solely 82 T.C. 793">*802 for their own account and do not enter into any transactions with specific individuals; rather, their profits or losses depend solely upon their ability to predict outcomes in an impersonal and (presumably) nonmanipulatable market or parimutuel event.

We find it hard to reconcile the "active trader" cases with the proposition announced in Gajewski that the "goods or services" requirement is a "minimum standard" for the existence of a "trade or business." Surely it cannot seriously be argued that the trader of securities "holds himself out to others as engaged in the selling of goods or services" simply by virtue of his transactions in the stock market. See 723 F.2d 1062">Gajewski v. Commissioner, supra at 1067 n. 8. The fact that theoretically the market "matches" the seller's transaction with that of some anonymous buyer does not, in our view, satisfy the meaning of "holding one's self out." The same rationale could be applied to petitioner, whose bet at the dog track is offset by that of some other anonymous gambler who places his money on a different dog. ²⁴ Yet, it1984 U.S. Tax Ct. LEXIS 67">*91 seems self-evident that neither the gambler nor the securities trader can be described as "holding himself out" within the meaning of Justice Frankfurter's opinion. The securities trader would not appear to fall within the Second Circuit's interpretation of a "trade or business" as "a commercial activity in which a person seeks to earn a livelihood by furnishing goods or services to others for a price." 723 F.2d 1062">Gajewski v. Commissioner, supra at 1066.

1984 U.S. Tax Ct. LEXIS 67">*92 Our view that the "trader" cases cannot be reconciled with the "goods or services" requirement is confirmed by the fact that the courts in those cases apply a general "facts and circumstances" approach, as directed by Higgins, and focus not on the taxpayer's sales of securities to others but rather on the frequency, extent, and regularity of his trading by which he capitalizes on short-term market swings. See 721 F.2d 810">Moller v. United States, supra;530 F.2d 1332">Purvis v. Commissioner, supra. In fact, the only court to consider Justice Frankfurter's "goods or 82 T.C. 793">*803 services" test in this context concluded that "those remarks do not apply to the present situation." 139 F.2d 465">Fuld v. Commissioner, supra at 468. ²⁵

Finally, we do not think that the amendments to the minimum1984 U.S. Tax Ct. LEXIS 67">*93 tax provisions in 1982 have any relevance to the issue before us. ²⁶ The provision which exempts gambling losses from the alternative minimum tax, section 55(e)(1)(A), was added in conference, and the legislative history does not illuminate the reasons for its addition. In any event, we note that this legislation preceded our decision in Ditunno, and as such could represent only a reaction to prior cases such as Gentile v. Commissioner, 65 T.C. 1">65 T.C. 1 (1975), which held full-time gamblers not to be engaged in a trade or business. It is thus not possible to draw any inference as to whether Congress viewed those cases as correctly or incorrectly interpreting the law; merely that it perceived such a result to be inequitable.

1984 U.S. Tax Ct. LEXIS 67">*94 For the reasons expressed above, we adhere to our decision in 80 T.C. 362">Ditunno v. Commissioner, supra, that in determining whether a taxpayer's activities constitute a trade or business, the taxpayer does not have to meet the "goods or services" test to prevail. Rather, such an inquiry requires a broader examination of all the facts involved in each case. Under the latter approach, it is clear that petitioner's gambling activities were sufficiently regular, frequent, active, and substantial to constitute a trade or business. Accordingly,

Decision will be entered for the petitioner.

82 T.C. 793">*804 Sterrett, J., concurring: I agree with the majority opinion in the instant case by reason of the doctrine of stare decisis and for that reason alone.

Chabot, J., dissenting: For the reasons set forth in Judge Tannenwald's dissenting opinion in Ditunno v. Commissioner, 80 T.C. 362">80 T.C. 362, 80 T.C. 362">372-377 (1983), I respectfully dissent.