GILLETTE AND SZCZEPANSKI V COMMISSIONER

Gillette and Szczepanski v Commissioner. In our ongoing coverage of Tax Court issues and cases we focus on this case, an Offer in Compromise issue case. The petitioners, Gillette and Szczepanski(a married couple), were assessed a liability on their 2012 federal income tax which included the penalty for early withdrawal from an IRS and the alternative minimum tax. They argued that they were not liable for the penalty or AMT due to Ms. Gillette's drug-induced gambling addiction.  The petitioner had previously served in the military and worked as a firefighter. She also purchased and managed rental properties from which she collected rents, managed financials and performed most maintenance. Her husband, Mr. Szczepanski was a police officer. Gillette and Szczepanski v Commissioner.

In the early 2000s, she began taking prescription medication for restless legs syndrome. Over time, the medication became less effective, and the taxpayer's doctor increased her dosage. After one such increase in 2010, she began exhibiting severe compulsive gambling. The first instance of compulsive behavior occurred when Ms. Gillette and Mr. Szczepanski celebrated Ms. Gillette's retirement from the fire department abroad a cruise ship. On this seven day cruise Ms. Gillette gambled through the nights, and when she returned home, she began searching for nearby casinos. From this point on, the taxpayer's gambling activity spiraled out of control. She began traveling hours from her home to play live casino games, increasing her bets to up to $500 on a single play at a slot machine and betting thousands of dollars on a single hand of blackjack. She opened credit lines at various casinos, and many were soon in default.

On one occasion the taxpayer won about $162,000. She left the casino with less, having played and lost a portion of her winnings. She went immediately to another casino that had closed one of her many credit lines and paid off her debt so they would extend her further credit. Days later, without much sleep and without leaving the casino, the taxpayer gambled away all of her winnings.

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