William C. Groetzinger lost his long-standing salaried position and, for essentially the entire tax year at issue, devoted full time (roughly 60–80 hours per week) to wagering on greyhound dog races, primarily in Florida. He studied racing forms and statistics, attended races daily, maintained records, and attempted systematically to earn a livelihood from gambling. He neither accepted bets for others nor held himself out as providing services to others; he wagered solely for his own account and had no other employment. For the year in question he realized substantial gross gambling winnings but an overall net gambling loss; he also incurred expenses connected to his activity (e.g., admission fees, telephone, mileage, and publications). On his return, he deducted those expenses as ordinary and necessary business expenses under I.R.C. § 162(a). The Internal Revenue Service disallowed the § 162 deduction on the ground that he was not engaged in a trade or business, invoking Higgins v. Commissioner's distinction between investing and a trade or business and emphasizing that Groetzinger did not render goods or services to others. The Tax Court held he was engaged in a trade or business and allowed the § 162 deductions (while recognizing that § 165(d) separately limits deductions for wagering losses to the extent of wagering gains). The court of appeals affirmed. The Supreme Court granted certiorari.
Whether a taxpayer who devotes full time, with continuity and regularity and for the primary purpose of income or profit, to wagering solely for his own account is engaged in a "trade or business" within the meaning of I.R.C. § 162(a).
A taxpayer is engaged in a trade or business if the activity is carried on with continuity and regularity and the taxpayer's primary purpose for engaging in the activity is for income or profit. There is no additional requirement that the taxpayer offer goods or services to others or otherwise "hold himself out" to the public. While ordinary and necessary expenses of a trade or business are deductible under § 162(a), § 165(d) independently limits deductions for losses from wagering transactions to the extent of the gains from such transactions.
Yes. A full-time gambler who wagers solely for his own account is engaged in a trade or business within the meaning of § 162(a). Accordingly, he may deduct ordinary and necessary business expenses under § 162(a), subject to the separate limitation in § 165(d) on losses from wagering transactions.
The Court refused to adopt the Commissioner's proposed bright-line rule that trade-or-business status requires holding oneself out to others or furnishing goods or services. Nothing in the Code or prior case law compels such a requirement, and importing it would arbitrarily exclude economically significant, profit-motivated activities conducted on a full-time basis for one's own account. Instead, building on Higgins v. Commissioner and Whipple v. Commissioner, the Court articulated a functional standard: an activity constitutes a trade or business when it is undertaken with continuity and regularity and the taxpayer's primary purpose is income or profit. Sporadic activity, hobbies, or pursuits of mere personal pleasure do not qualify. Applying that test, the Court found Groetzinger's conduct businesslike and intensive: he spent 60–80 hours weekly, studied statistics, kept records, and sought to derive his livelihood from gambling. That he did not accept bets for others was immaterial. The Court distinguished Higgins, which treated investment management as not a trade or business, noting that gambling on one's own account—especially on a full-time basis—entails a different pattern of activity and risk. The Court also reconciled its conclusion with the Code's structure: Congress specifically limited the tax benefits of gambling by enacting § 165(d), which caps wagering losses regardless of business status. Recognizing professional gambling as a trade or business under § 162(a) therefore does not undermine the statutory policy against using gambling losses to shelter other income; § 165(d) still does that work. The Court thus affirmed, establishing that the touchstone is continuity, regularity, and profit motive—not the provision of goods or services to others.
Groetzinger supplies the modern, widely cited definition of "trade or business": continuity and regularity plus a primary profit motive. Law students will encounter this test throughout federal tax—§ 162 deductions, § 183 hobby-loss analysis, net operating losses, and other provisions that hinge on trade-or-business status. The case also rejects a formalistic "holding out" or goods/services requirement, clarifying that a taxpayer can be in business even when acting solely for his or her own account. Finally, the decision underscores that general deductibility provisions must be read alongside specific limitations like § 165(d), which cabin the extent to which taxpayers may use losses to reduce taxable income. Subsequent statutory developments have further refined the gambling context, but the Groetzinger test remains the baseline definition across the Code.
Commissioner v. Groetzinger is the touchstone for determining when an activity rises to the level of a trade or business under federal tax law. By focusing on continuity, regularity, and profit motive—and rejecting a formal requirement that taxpayers offer goods or services to others—the Court provided a workable, fact-sensitive standard that aligns with economic reality.