This section contains the nature of the case and procedural background.

D was employed at the Dunes Hotel & Country Club, in Las Vegas as a 21 dealer. The players sometimes gave dealers tips or 'tokes' in the form of coins or casino chips. Players often gave tokes to the dealers directly; at other times, they placed bets for the dealers, with a player determining after a winning bet how much of the winnings was the dealer's to keep. The tax court found that during the years in question, 1969-1971, all 21 dealers at the Dunes pooled their tokes, and that the pool was divided equally once a day among all the dealers who had worked during that day's three shifts. Commissioner (P) asserted that D had underreported tip income in 1969, 1970, and 1971. This was done on entries in a diary kept by one John Whitlock, Jr., not a party to this action, who worked at the Dunes from March 4, 1967, to May 7, 1970. Whitlock kept a diary of his earnings. Statistical analysis of the tip entries resulted in an average daily toke income per dealer of between $42.04 and $74.24, depending on the year and the day of the week. At trial before the tax court, the principal evidence was a photocopy of the Whitlock diary and testimony by Barbara Mikle, by then Whitlock's former wife. D claimed that he had recorded his daily toke income, but had thrown the records out monthly after reporting toke income to the Dunes each month. D objected to the diary as it was hearsay because Whitlock was unavailable to testify. The court allowed in under the business records exception. D was found guilty and appealed.

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