## Facts

- Giant Eagle, an accrual-method taxpayer, operated a customer-loyalty program that offered gasoline discounts.
- In 2004 it implemented “fuelperks!,” granting Advantage Card customers a 10-cent-per-gallon fuel discount for every $50 spent on qualifying groceries.
- Earned discounts could be redeemed only for fuel and expired at the end of the month three months after being earned.
- Program materials allowed Giant Eagle to end the program but did not state that already-earned, unexpired rewards could be revoked; Giant Eagle did not revoke such rewards in practice.
- For tax years 2006 and 2007, Giant Eagle deducted the estimated cost of fuel discounts that customers had earned through grocery purchases but had not redeemed by year-end, limited to amounts expected to be redeemed before expiration.
- Giant Eagle calculated the deduction using face value of earned rewards adjusted by historical redemption rates and average gallons purchased per discounted transaction.
- The IRS disallowed the deductions, asserting liability was not fixed at year-end under I.R.C. § 461’s all-events test.
- The Tax Court upheld the IRS, reasoning Giant Eagle’s liability arose only when customers later bought fuel and used the discount.
- On appeal, the Commissioner conceded reasonable accuracy and economic performance (including recurring-item treatment), leaving only whether the fact of liability was fixed by year-end.

## Issues

1. Under I.R.C. § 461’s all-events test, was the fact of Giant Eagle’s liability for fuelperks! discounts fixed when customers earned the rewards through qualifying grocery purchases, or only upon later redemption with a fuel purchase?

## Decision

- The Third Circuit reversed the Tax Court and remanded with instructions to enter judgment for Giant Eagle.
- The court held Giant Eagle’s liability was fixed at checkout when customers purchased qualifying groceries and earned fuelperks! rewards.
- The court concluded fuelperks! operated as a unilateral contract under Pennsylvania law, creating a legally enforceable obligation to honor accrued, unexpired discounts.
- The court rejected the view that a later fuel purchase was a condition precedent to liability; it was merely the customer’s exercise of an already-accrued right.
- The court distinguished *United States v. General Dynamics Corp.*, where claim submission was necessary to create any legal duty to pay.

## Legal Principles

- An accrual-method taxpayer may deduct an expense when: (1) all events establishing the fact of liability have occurred, (2) the amount is determinable with reasonable accuracy, and (3) economic performance has occurred (with modifications for qualifying recurring items).
- For the first prong, liability is fixed when a legally enforceable obligation exists; uncertainty about which obligees will claim payment, or the ultimate amount claimed, does not by itself prevent accrual.
- A later customer action does not defeat accrual where it represents use of an already-vested right rather than an event required to create the obligation.
- Statistical certainty alone cannot support accrual if an event necessary to establish legal liability has not occurred by year-end.

## Conclusion

The Third Circuit held that Giant Eagle’s obligation to honor earned fuelperks! discounts was legally fixed when customers made qualifying grocery purchases, allowing deductions at year-end for the reasonably estimated cost of unredeemed, unexpired rewards expected to be redeemed.


Giant Eagle, Inc. v. Commissioner, 822 F.3d 666 (3d Cir. 2016)