## Facts

- Gold Coast Hotel & Casino operated a slot-club rewards program for slot machine players.
- Players earned points tracked electronically through club cards inserted into slot machines.
- Points were redeemable for prizes; the minimum redemption threshold was 1,200 points.
- The parties stipulated each point had a market value of $0.0021, and Gold Coast’s system tracked earned and redeemed points by member account.
- Nevada law made Gold Coast legally obligated to provide a prize once a member reached 1,200 points, creating an enforceable right to redeem.
- Gold Coast, an accrual-method taxpayer, deducted at year-end the value of unredeemed points held by members whose balances exceeded 1,200 points.
- Gold Coast also included in income the value of previously deducted points that remained unredeemed for more than one year (a recapture practice).
- The IRS disallowed the deductions, asserting liability was not fixed until members actually redeemed points.
- Gold Coast filed a federal refund suit; the district court granted summary judgment for Gold Coast, and the United States appealed.

## Issues

1. For an accrual-method taxpayer, is liability for slot-club prizes fixed (and deductible) when a member reaches the minimum redemption threshold, or only when the member redeems points?
2. Does the all-events test under I.R.C. § 461 permit accrual where the obligation is legally enforceable but may go unclaimed?
3. Can the amount of the liability be determined with reasonable accuracy based on tracked point balances and a stipulated per-point value?

## Decision

- The Ninth Circuit affirmed summary judgment for Gold Coast.
- The court held Gold Coast could deduct the value of slot-club points in the tax year a member accumulated at least 1,200 points.
- The court rejected the government’s position that deductions must await actual redemption.

## Legal Principles

- Under the accrual-method all-events test (I.R.C. § 461; Treas. Reg. § 1.461-1(a)(2)), a liability is incurred when all events establish the fact of liability and the amount is determinable with reasonable accuracy (subject to § 461(h) economic performance).
- A liability may be fixed when state law makes an obligation legally enforceable upon satisfaction of a defined condition, even if payment or performance may occur later.
- The possibility that an enforceable obligation may never be claimed concerns collectability or claim behavior, not whether the legal liability exists for accrual purposes.
- A liability is reasonably estimable where the taxpayer can compute the obligation from reliable records and objective valuation inputs (here, tracked point balances and a stipulated per-point value).
- Reward-point obligations tied to completed customer activity may be treated similarly to other state-law-enforced casino promotional obligations for timing of accrual.

## Conclusion

The Ninth Circuit held that an accrual-method casino may deduct slot-club reward liabilities when members cross the program’s legally enforceable redemption threshold, because the obligation is fixed at that point and can be valued with reasonable accuracy, without waiting for actual redemption.


Gold Coast Hotel & Casino v. United States, 158 F.3d 484 (9th Cir. 1998)