Background info: Lee, a single 60-year-old taxpayer with no dependents, became very rich from his previous career as a CIA agent and is now a compulsive gambler. In 2021, Lee borrowed $5 million to gamble and lost it all. He was unable to pay it back in full, but settled the debt for a $75,000 payment in December of 2021. Consider the following independent scenarios:

Scenario 1: Lee borrowed the money from Ronald's Taj McHal in Las Vegas. Because Lee was such a good patron, the Taj McHal let him borrow money periodically over the course of the year. There was no documentation of each borrowing and due to the nature of Lee's compulsive gambling, he lost track of the amounts. As such, he disputed the amount of debt he owed to the casino.

Scenario 2: Rather than a casino, assume Lee borrowed the money as a single lump sum from his bookie in California, where gambling is illegal, making the debt unenforceable. (Fortunately, Lee developed a very particular set of skills over his long career, so he's not worried about the bookie).

what is the taxable income and tax liability in each scenario? explanation please!!