Gold Coast Hotel & Casino V. United States - Reasoning

Reasoning

First prong: the all-events test: The court found that the "fundamental premise" underlying the all-events test is that expenses may not be deducted until liability is firmly established. Therefore, the liability must be fixed and unconditional and not contested or contingent upon a future event. The court disagreed with the Commissioner as to the timing of when Gold Coast became liable to its slot club members. It rejected the Commissioner’s claim that liability was not fixed until a customer redeemed his or her slot club point. Instead, the court held that Gold Coast's liability became fixed upon a member accumulating the minimum number of points required to redeem a prize. Quoting United States v. Hughes Properties, Inc., the court found that "he existence of an absolute liability is necessary; absolute certainty that it will be discharged by payment is not." Therefore, just because a club member might choose not to redeem his or points in a certain year does not mean that Gold Coast's liability is not fixed. Furthermore, Gold Coast will simply recapture as income those liabilities that were not discharged by redemption of the points in the next year.

Second prong: liability must be determined with reasonable certainty:The court found that, because the parties had stipulated to the monetary value of each club point, the amount of the liability could be determined by multiplying this value by the number of accumulated points in accounts with more than the minimum number of points needed to claim a prize. Therefore the liability is capable of being determined with reasonable certainty.