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Byrd v. Hamer
State: Illinois
Court: 2nd District Appellate
Docket No: 2-08-1011 Rel
Case Date: 01/28/2011
Preview:No. 2--08--1011 Opinion filed January 28, 2011 _________________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS SECOND DISTRICT _________________________________________________________________________________ JERRY H. BYRD and MARYLOU E. BYRD, ) Appeal from the Circuit Court ) of McHenry County. ) Plaintiffs-Appellants, ) ) v. ) No. 07--MR--40 ) BRIAN A. HAMER, Director of Revenue, ) and THE DEPARTMENT OF REVENUE, ) The Honorable ) Maureen P. McIntyre, Defendants-Appellees. ) Judge, Presiding. _________________________________________________________________________________ JUSTICE BIRKETT delivered the judgment of the court, with opinion. Presiding Justice Jorgensen and Justice Bowman concurred in the judgment and opinion. OPINION Plaintiffs, Jerry and MaryLou Byrd (Byrds), brought an action for administrative review of the decision of the Illinois Department of Revenue (Department) that the Byrds' gambling winnings for tax years 1999, 2000, 2001, and 2002 are taxable income under Illinois law and that their gambling losses for those years are not deductible under Illinois law. The Byrds contend that the Department erred in finding that they were not engaged in gambling as a trade or business for those tax years but were recreational gamblers and, as such, not entitled to a deduction for gambling losses. The Byrds alternatively raise various constitutional challenges to the tax scheme in Illinois that permits deduction of gambling losses for individuals who gamble as a trade or business but not for

No. 2--08--1011 those who gamble for recreation. For the reasons stated below, we confirm the decision of the Department. I. BACKGROUND The following is a sketch of the relevant facts, which will be set forth in greater detail below. The Byrds, who are married, gambled at several casinos during tax years 1999, 2000, 2001, and 2002. Most of their gambling occurred at Hollywood Casino in Aurora and Grand Victoria Casino in Elgin. The Byrds played mostly slot machines, and they accumulated substantial winnings and losses. The Byrds filed Illinois and federal tax returns for years 1999, 2000, and 2001, and a federal return for year 2002. As of the Department's decision in this case, the Byrds had not filed a 2002 Illinois return. After the Department reviewed the Illinois returns, it sent the Byrds a series of original and amended tax deficiency notices (NODs) claiming that the Byrds' reported income on their Illinois returns for 1999 to 2001 improperly excluded their gambling winnings. The Department likewise claimed that the Byrds' Illinois tax liability for 2002 included tax on their gambling winnings for that year. The Byrds challenged the NODs, and the Department ultimately found the Byrds liable for $60,382 in additional taxes. The trial court affirmed the Department's decision, and the Byrds appealed to this court. A. Treatment Under Federal and Illinois Law of Gambling Winnings and Losses The facts of this case are best understood against the backdrop of federal and Illinois tax law concerning gambling winnings and losses. We begin by delineating that tax scheme. The parties agree that Illinois tax law has no specific provision for gambling winnings or losses. Nevertheless, as the parties recognize, there are tax consequences for an Illinois taxpayer who incurs gambling winnings or losses. Part of the reason gambling has tax consequences for an Illinois taxpayer though Illinois law makes no specific provision for them is that the Illinois income tax law -2-

No. 2--08--1011 " `piggy-backs' onto the federal calculation of income and uses federal taxable income as the premise for tax liability." Rockwood Holding Co. v. Department of Revenue, 312 Ill. App. 3d 1120, 1124 (2000). By virtue of this derivative relationship, Illinois taxpayers can enjoy the benefit of certain federal income tax exclusions or deductions that have no express parallel under Illinois law. See Bodine Electric Co. v. Allphin, 81 Ill. 2d 502, 509 (1980). This scheme works as follows for gambling winnings and losses. The Internal Revenue Code (IRC) (26 U.S.C.
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