Gambler Hits Jackpot in IRS Case, Sets Tax Precedent

A rare precedent-setting win against the IRS earlier this year is making the lucky taxpayer something of a folk hero among those whom fortune hasn't favored to the same extent.

Scrutinized by the federal tax agency over the nearly $2.5 million in gambling losses he claimed during a three-year period, Frank Gagliardi, 46, clearly had an above-average ability to fight his case in court. For one thing, the $26.7 million the compulsive gambler won in the California lottery in 1991 brings in an annual income of more than $666,000 according to the San Diego Union-Tribune and the Online Casino Advisory blog.

That meant he not only had a lot of money to lose at the slot machines, but plenty to pay to fight his case. "Gagliardi brought in psychologists who testified to the nature of addictive gambling; a girlfriend who said he was so busy playing slots it took three days for him to realize she had left him; and witnesses who swore he played right through the 9/11 catastrophe," the blog recounts.

“He had to spend a lot of money to substantiate his losses,” his attorney, Eric Swenson, who tried the case with Allison Cato, tells the newspaper. But, in the end, Gagliardi persuaded a tax-court judge that he had, in fact, sustained seven-figure gambling losses.

Now the case is expected to make it easier for other taxpayers to claim their gambling losses, too.