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Subject:  Re: Gambling deductions allowed? Date:  7/12/2000  7:19 PM
Author:  TMFTaxes Number:  37399 of 127987

<<The day will come when someone asks: "How is investing in the stock market *not* gambling?" People risk money they can't afford to lose on outcomes that they don't understand and that they have no control over. This sounds like gambling to me. Is it because there's no "house"? Is it because it's not a "closed" game? >>

Funny you should mention that, LoTax. In researching one of my weekly articles regarding traders and investors, I found a Tax Court judge who compared "daytrading" directly to gambling. Let me see if I can find the quote...here it is:

“We are unable to discern any meaningful distinction between the so-called 'active trader' of securities and the full time gambler. The essential nature of these activities is identical; to state it simply, one gambles on stocks, the other on dogs. Both bet, or trade, solely 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) non-manipulatable market or pari-mutuel event.”

I've always felt that UNEDUCATED and UNTRAINED trading is the middle class vegas crap game. And God knows that there IS a lot of uneducated and untrained trading going on out there every day.

That being said, the Tax Court also said, in other various opinions, that gambling or wagering cannot be implied in risky ventures which are not true wagering. Therefore, the purchase of high risk debentures, such as so-called "junk bonds," does not give rise to gambling losses when sold at a loss. Gambling is confined to the more traditional types of gambling, such as purchasing a lotto ticket or a roll of the dice.

I'm guessing that your question was really rhetorical in nature, but it DOES make for an interesting discussion.

TMF Taxes
Roy




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