June 18, 2019 - Douglas Myser

Casualty loss deduction disallowed. This is an ongoing series devoted to Tax Court issues. Federal Tax Resolution has now added U.S. Tax Court Representation in all 50 States to our list of services. If you need Tax Resolution Services, and are unsure if they means going to Tax Court, call us.

The Tax Court found that a taxpayer could not deduct excessive gambling losses as a casualty deduction, even though they were related to the side effects of a prescription drug that caused him to lose the ability to control his impulses. Although the court found that the compulsive gambling was most likely a side effect of the medication, it determined that the gambling losses did not result in any physical damage and were not sudden, so they did not qualify as a "casualty". Casualty loss deduction disallowed.

Marc Mancini was diagnosed with Parkinson's disease in 2004. He began taking a small does of a prescription medication to help him control his movements. The medication significantly improved his symptoms, but his behavior began to change and included compulsive gambling, compulsive cleanliness, falling asleep at the wheel while driving and gambling compulsively. His compulsive gambling over the next two years drained nearly all of his savings and retirements accounts. After his relatives explained to the doctor the change in behavior, the Doctor took him off the medication, and his behavior stopped.

The issue before the IRS Tax Court was whether the medicine caused Mancini's compulsive gambling, whether those losses were deductible as casualty losses, whether he substantiated the losses and whether a penalty applied. The taxpayer used testimony from a Board Certified Psychiatrist to describe the side effects of the Parkinson's medication and identify it as the cause of the compulsive gambling. The Tax Court found that Mancini's compulsive gambling was likely a side effect of the medicine, and the IRS's failure to provide any contrary evidence. Casualty loss deduction disallowed.

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