Applying this methodology, respondent concedes that if we find, as we have found, that on March 29, 2005, petitioners entered the casino with $ 500 and took home $ 1,600 of winnings, the amount of gambling income which petitioners should have reported on their 2005 return was $ 1,100 ($ 2,000 jackpot winnings less $ 500 brought to the casino for gambling and less 2009 Tax Ct. Memo LEXIS 310">*314 $ 400 taken from the jackpot for additional gambling) rather than $ 2,000 as determined in the notice of deficiency.

Although petitioners have stated that they "agree with" the Chief Counsel Advice, they nevertheless maintain, contrary to the Chief Counsel Advice, that they should be allowed to offset their March 29, 2005, net winnings with $ 2,264 of gambling losses they claim to have incurred throughout 2005. They contend that this result is necessary to treat "regular and casual gamblers equally". ²

The Code mandates, however, that casual gamblers be treated differently from taxpayers who are in the trade or business of gambling. In particular, gambling losses incurred in a trade or business of gambling are allowable in computing adjusted gross income pursuant to section 62(a)(1). Gambling losses incurred other than in the trade or business of gambling are allowable, if at all, as itemized deductions in calculating taxable income. See sec. 63(a), (d); Johnston v. Commissioner, 25 T.C. 106">25 T.C. 106, 25 T.C. 106">108 (1955); Cromley v. Commissioner, T.C. Memo 2008-176; Heidelberg v. Commissioner, T.C. Memo. 1977-133.

Because 2009 Tax Ct. Memo LEXIS 310">*315 petitioners were not engaged in the trade or business of gambling, their gambling losses are allowable only as itemized deductions. But because petitioners have elected the standard deduction, they are not entitled to itemize their deductions. ³Sec. 63(b), (e); see 25 T.C. 106">Johnston v. Commissioner, supra; Heidelberg v. Commissioner, supra.We reject as without merit petitioners' contention that this statutory arrangement is unconstitutional. See Tschetschot v. Commissioner, T.C. Memo. 2007-38 (upholding constitutionality of section 165(d)); Valenti v. Commissioner, T.C. Memo. 1994-483 (same); cf. Gajewski v. Commissioner, 84 T.C. 980">84 T.C. 980 (1985) (holding that for purposes of computing the minimum tax the 16th Amendment does not require that a casual gambler's gambling losses be netted against gambling gains).

Drawing an analogy to the recovery of a capital 2009 Tax Ct. Memo LEXIS 310">*316 investment, this Court has held that a casual gambler's gross income from a wagering transaction should be calculated by subtracting the bets placed to produce the winnings, not as a deduction in calculating adjusted gross income or taxable income but as a preliminary computation in determining gross income. See Lutz v. Commissioner, T.C. Memo 2002-89 (slot machine winnings); Hochman v. Commissioner, T.C. Memo. 1986-24 (horse race winnings). This Court has also recognized the practical difficulties of tracking the basis of each wager individually in a session of like play. See Green v. Commissioner, 66 T.C. 538">66 T.C. 538, 66 T.C. 538">548 (1976) (stating that a "tabulation of the amounts paid for chips less the amount paid to redeem chips would have served to verify the net win or loss figures"); Szkircsak v. Commissioner, T.C. Memo. 1980-129 (stating that "it is impractical to record each separate roll of the dice or spin of the wheel"). The methodology put forward by respondent is consistent with these principles.

Insofar as petitioners mean to suggest that section 165(d) permits their gross income from slot machine play to be calculated by netting all their 2005 slot machine gains and losses, we disagree. 2009 Tax Ct. Memo LEXIS 310">*317 Section 165(d) does not define gross income but instead limits the deductibility of losses on wagering "transactions" to the amount of gains from wagering "transactions". Consistent with general principles treating each wager as a separate taxable event under Federal tax law, see Abeid v. Commissioner, 122 T.C. 404">122 T.C. 404, 122 T.C. 404">411 (2004), section 165(d) clearly contemplates that gross income from wagering is determined in the first instance by reference to individual wagering "transactions." To permit a casual gambler to net all wagering gains or losses throughout the year would intrude upon, if not defeat or render superfluous, the careful statutory arrangement that allows deduction of casual gambling losses, if at all, only as itemized deductions, subject to the limitations of section 165(d).

Respondent has effectively conceded that petitioners' gross income from their March 29, 2005, slot machine play was $ 1,100. Cf. LaPlante v. Commissioner, T.C. Memo 2009-226 (holding that taxpayers failed to substantiate claims of net gambling gains and losses). Giving effect to this concession, we hold that petitioners had $ 1,100 of unreported gross income from gambling in 2005 and are entitled to no 2009 Tax Ct. Memo LEXIS 310">*318 deduction for gambling losses.

To reflect the foregoing,

Decision will be entered under Rule 155.