UNITED STATES OF AMERICA, PETITIONER V. HUGHES PROPERTIES, INC.

   No. 85-554

   In the Supreme Court of the United States

   October Term, 1985

   On Writ of Certiorari to the United States Court of Appeals for the
Federal Circuit

   Brief for the United States

            TABLE OF CONTENTS
   Opinions below
   Jurisdiction
   Statutes involved
   Question presented
   Statement
   Summary of argument
   Argument:
      The amounts shown on the jackpot indicators of
      respondent's progressive slot machines were not
      deductible as an accrued expense at the close of its
      taxable year
       A. An expense is not deductible for federal tax
          purposes until there exists a fixed liability to pay
          it, and respondent had no obligation to pay the
          jackpots unless and until somebody won them
      B. In permitting respondent to take a current tax
          deduction for a contingent future expense, the
          court of appeals misapprehended the differences
          that this Court has recognized between tax and
          financial accounting
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-3a) is reported
at 760 F.2d 1292.  The opinion of the Claims Court (Pet. App. 5a-20a)
is reported at 5 Cl. Ct. 641.

                             JURISDICTION

   The judgment of the court of appeals (Pet. App. 4a) was entered on
May 2, 1985.  On July 11, 1985, the Chief of Justice extended the time
within which to petition for a writ of certiorari to and including
September 29, 1985 (a Sunday).  The petition was filed on September
30, 1985, and was granted on December 2, 1985.  The jurisdiction of
this Court rests on 28 U.S.C. 1254(1).

                           STATUTES INVOLVED

   The relevant portions of Sections 162, 446 and 461 of the Internal
Revenue Code of 1954 (25 U.S.C.), and of Section 1.461-1 of the
Treasury Regulations on Income Tax (26 C.F.R.), are set out in a
statutory appendix (Pet. App. 22a-24a).

                          QUESTION PRESENTED

   Whether a gambling casino using the accrual method of tax
accounting is entitled to deduct, as a fixed liability at the close of
its taxable year, the amounts registered on the "jackpot indicators"
of its progressive slot machines, even though it has no obligation to
pay such amounts unless and until the jackpots are won by its patrons
in some future year.

                               STATEMENT

   1. The relevant facts were stipulated (Pet. App. 5a).  Respondent
Hughes Properties, Inc., is a Nevada corporation that owns Harolds
Club, a gambling casino in Reno, Nevada.  During the tax years at
issue, respondent owned and operated "progressive slot machines" in
its casino (id. at 6a).  Like other slot machines, a "progressive"
slot machine pays fixed amounts when certain combinations of symbols
appear.  Unlike other slot machines, however, a "progressive" slot
machine also has an additional, "progressive" jackpot.  This jackpot
is initially set at a minimum amount determined by the casino (ibid.).
 It automatically increases, according to a ratio determined by the
casino, as money is gambled on the machine (J.A. 64).  The amount of
the jackpot outstanding at any given time is registered on a meter, or
"payoff indicator," on the face of the machine (Pet. App. 6a-7a &
n.2).  This sum continues to increase as patrons gamble on the machine
until the jackpot is won or until a maximum amount, again determined
by the casino, is reached (id. at 6a).  A progressive jackpot can be
won only when a customer gambles the required amount of money and the
machine displays the winning combination of symbols (ibid.).

   The odds of winning a progressive jackpot are a function of the
number of reels on the machine, the number of positions on each reel
where the reel may stop, and the number of winning symbols placed on
each reel (Pet. App. 6a;  J.A. 29).  The odds are determined by
respondent;  provided that there actually exists a possibility that
the winning combination of symbols can appear, respondent's discretion
in setting odds is unrestricted.  By adjusting the odds, respondent
can determine, within limitations prescribed by the law of averages,
the frequency with which any particular progressive slot machine will
pay off.  In a 1976 study of 24 representative machines, respondent
ascertained that one machine had been in operation for 13 months
without a payoff, that another machine had been in operation for 35
months without a payoff, and that the payoff frequency of the other 22
machines ranged from a high of 14.3 months to a low of 1.9 months
(Pet. App. 7a n.1).

   2. In September 1972 the Nevada Gaming Commission promulgated a
rule that, for the first time, regulated the use of progressive slot
machines by licensed casinos.  Nev. Gaming Reg. Section 5.110 (1972)
(reprinted at J.A. 55-56).  The rule requires gaming establishments to
maintain daily records of the progressive jackpot amounts registered
on each machine (Nev. Gaming Reg. Section 5.110(5) (1972)).  It
directs that "(n)o payoff indicator shall be turned back to a lesser
amount" unless the progressive jackpot is won by a customer, or unless
"the change in the indicator reading is necessitated through a machine
malfunction" (id. Section 5.110(2)).  In the latter event, a report
explaining the reduction in the payoff indicator must be filed (id.
Section 5.110(5)).  The rule does not address the consequences of a
casino's election to discontinue use of a machine, e.g., by retiring
it from service or by removing it from the floor indefinitely.  The
Gaming Commission's unwritten policy in such circumstances apparently
is to require that the casino transfer the amount registered on the
jackpot indicator of such a machine to another progressive slot
machine remaining in play at the same premises.  J.A. 78;  see Nev.
Gaming Reg. Section 5.110(5) (1977) (reprinted at J.A. 56-57).

   The Gaming Commission rule described above is strictly enforced by
the Commission, which is authorized to impose sanctions (including
license revocations) on casinos that wrongfully refuse to pay a
progressive jackpot to a winning customer (Pet. App. 9a).  The rule
applies to all Nevada casinos so long as they remain in the gaming
business (J.A. 44).  If a casino were to go out of business, to
surrender its gaming license, or to enter bankruptcy proceedings, it
would no longer be subject to the rule and would be free to reduce or
eliminate the amounts shown on its progressive jackpot indicators (id.
at 23, 44).  The rule does not address the treatment of progressive
slot machine jackpots in the event of the sale or other disposition of
a gaming business.  The Gaming Commission's unwritten policy in such
circumstances apparently is to require that the buyer continue the
machines in play, without reduction of the payoff indicators (id. at
20, 38, 43, 59-60, 78).  Whether the sales price would be adjusted to
reflect that requirement, however, is a matter of negotiation between
the buyer and the seller (id. at 20, 43, 59, 78).

   It is respondent's practice to remove the coins deposited by
customers into its progressive slot machines (generally called "the
drop") at least twice per week and on the last day of each calendar
month (J.A. 68).  The Nevada Gaming Commission does not regulate
respondent's use of the funds thus collected.  The Commission's
regulations were amended in 1977 to require that casinos at all times
maintain either "a minimum cash reserve" or "sufficient cash or cash
equivalents to provide payment of all progressive jackpots offered to
the public as prizes" (Nev. Gaming Reg. Section 5.110(3) (1977)).  But
casinos are free to invest such funds as they see fit until the
jackpots are actually won by customers.

   3. Respondent uses the accrual method of accounting for federal tax
purposes.  In compliance with the Gaming Commission rule described
above, respondent recorded the meter readings shown on its progressive
slot machines every day and made no impermissible reductions of the
machines' payoff indicators (Pet. App. 9a).  At midnight on the last
day of its fiscal tax year, respondent entered the jackpot amounts
shown on those indicators as an "accrued liability" on its books
(ibid.).  From that total, respondent subtracted the previous year's
"accrued jackpot liability" to produce a "net accrued liability" for
the tax year in question (id. at 10a).  On its federal income tax
returns for 1973-1977, respondent deducted the latter amounts under
Section 162 of the Code /1/ as "ordinary and necessary (business)
expenses paid or incurred during the taxable year."

   The Commissioner on audit disallowed the claimed deductions.  He
noted that, under the accrual method of tax accounting, an expense may
not be deducted until "all of the events have * * * occurred which fix
the liability" (Treas. Reg. Section 1.461-1(a)(2)).  The Commissioner
determined that the events which would fix respondent's liability to
pay a particular progressive jackpot would be some lucky patron's pull
of the handle, and the consequent appearance of the winning symbols on
the slot machine, in some future tax year.  Until those events
occurred, the Commissioner concluded, respondent's obligation to pay
the jackpots was contingent and thus gave rise to no deductible
expense (Pet. App. 10a).  The Commissioner determined a deficiency in
respondent's income tax in the amount of $433,000 for the tax years at
issue (id. at 1a, 21a).

   4. Respondent paid the asserted deficiency and, following the
denial of its administrative claim for refund, filed this refund suit
in the Claims Court.  Respondent contended that the year-end amounts
shown on the payoff indicators of its progressive slot machines were
deductible because there was "a reasonable expectancy that * * *
payment (would) be made" at some future date (J.A. 47).  Respondent
argued that the accrual of such amounts as current liabilities
"conform(ed) with generally accepted accounting principles and
result(ed) in a proper matching of revenues and expenses" (id. at 51).
 It produced an affidavit from its accountants to that effect (id. at
45-46, 69).

   On cross motions for summary judgment, the Claims Court ruled for
respondent (Pet. App. 4a, 19a).  It concluded that, under the Gaming
Commission rule described above, respondent's liability to pay the
amounts on the progressive jackpot indicators became "unconditionally
fixed" (id. at 14a) at "midnight of the last day of the fiscal year"
(id. at 19a).  In the Claims Court's view, the last event necessary to
fix respondent's liability for the progressive jackpots was "the last
play (successful or not) of the machine before the close of the fiscal
year, that is, the last change in the jackpot amount before the amount
is recorded for accounting purposes" (id. at 13a).  "The winning
handle pull," the court said, would "only determine() the fortunate
gambler in whose favor the liability (would be) enforced" (id. at 14a)
(original quotation marks omitted)).  The court appeared to
acknowledge that if respondent "were to close its doors and go out of
business, * * * it would not owe the jackpots to anybody" (id. at 15a
(original quotation marks omitted)).  But "(e)ven if the progressive
slot machines were to never pay off," the court reasoned, "the set
jackpot amounts indicated on the face of the machine(s) would still
continue to be an incurred liability fixed by state law" (id. at 14a
(emphasis in original)).  The court said that a contrary result would
mismatch respondent's income and expenses and in effect would "convert
(respondent) * * * from an accrual basis taxpayer to a cash basis
taxpayer" (id. at 14a-15a (emphasis omitted)).

   The Federal Circuit affirmed "on the basis of the * * * Claims
Court opinion" (Pet. App. 3a).  It held that a "fixed liability"
exists for federal tax purposes "if there is an obligation to perform
an act and the cost of performance can be measured in money" (id. at
2a).  Applying that standard, it agreed with the Claims Court that
respondent's progressive-jackpot liability was "unconditionally fixed
as of the close of the taxable year" (ibid.).  The court noted that
its holding conflicted with that of the Ninth Circuit in Nightingale
v. United States, 684 F.2d 611 (1982), but it did not further discuss
that decision or the reasoning that the Ninth Circuit there advanced.

                          SUMMARY OF ARGUMENT

   The timing of deductions for accrual-basis taxpayers is governed by
the "all events" test of tax accounting.  That test has two elements,
both of which must be satisfied before accrual of an expense is
proper.  First, "all of the events (must) have * * * occcurred which
fix the liability" (Treas. Reg. Section 1.461-1(a)(2)).  Second, "the
amount (of the liability must) be determin(able) with reasonable
accuracy" (ibid.).  The question here is whether respondent met the
first part of the test, that is, whether it had a "fixed liability" to
pay the progressive jackpots as of the close of its tax year.

   This Court has consistently held that a liability does not accrue
for purposes of the "all events" test as long as it remains
contingent.  Brown v. Helvering, 291 U.S. 193, 200 (1934).  To be
deductible for tax purposes, "the obligation to pay (must) ha(ve)
become final and definite." Security Flour Mills Co. v. Commissioner,
321 U.S. 281, 287 (1944).  It must be "unconditional." Lucas v. North
Texas Lumber Co., 281 U.S. 11, 13 (1930).

   Respondent's liability for the progressive slot machine jackpots
was plainly not "fixed" or "unconditional" at midnight on the last day
of its tax year.  At that moment, there existed no person at all who
could assert any possible claim to those funds.  Rather, respondent's
liability to pay each jackpot was contingent upon a future event --
some lucky patron's winning pull of the slot machine handle at an
indeterminate future time.  Until that event happened, "all the
events" that were necessary to make respondent's liability fixed and
unconditional had not occurred.  Respondent quite simply was not
liable to anyone until somebody won the jackpot.

   Contrary to the court of appeals' statement, the Nevada Gaming
Commission rule, which prohibits casinos from turning back the meters
on their progressive slot machines, does not alter the conditional
nature of respondent's year-end liability.  That rule does not require
respondent to pay a jackpot unless and until it is won by a customer.
The rule thus leaves respondent's year-end liability subject to the
same future condition -- the winning pull of the handle -- to which it
was subject before the rule was promulgated.  The effect of the rule
is simply to place a floor beneath the amount of respondent's
potential liability:  it dictates that the dollar amount of
respondent's obligation, if an when it is incurred, will be at least a
specified sum.  But while the Gaming Commission rule might thus be
relevant in deciding whether the amount of respondent's liability
could "be determined with reasonable accuracy" (Treas. Reg. Section
1.461-1(a)(2)) for purposes of the second part of the "all events"
test, that rule makes no difference in deciding whether respondent's
liability, for purposes of the first part of the test, is "fixed" and
"unconditional" at year's end.

   In permitting respondent to take a current tax deduction for a
contingent future expense, the court of appeals ignored the import of
this Court's decisions emphasizing the critical differences between
tax and financial accounting.  Because there is a probability that
respondent will eventually incur liability for its progressive
jackpots, financial accounting rules, implementing "the principle of
conservatism" (Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 642
(1979)), may well require respondent to establish a year-end reserve
for those items and show them as a liability on its books.  But
"(o)nly a few reserves voluntarily established as a matter of
conservative accounting are authorized by the Revenue Acts" (Brown v.
Helvering, 291 U.S. at 201-202).  Rather, "the tax law requires that a
deduction be deferred until 'all the events' have occurred that will
make it fixed and certain" (Thor Power Tool Co., 439 U.S. at 543,
quoting United States v. Anderson, 269 U.S. 422, 441 (1926)).  By
insisting upon certainty of liability rather than probability, the
"all events" test serves the objective of tax accounting "to protect
the public fisc" (Thor Power Tool Co., 439 U.S. at 542) by ensuring
that taxpayers do not obtain current tax deductions for contingent
expenditures that may actually occur far in the future, or not at all.

                               ARGUMENT

 THE AMOUNTS SHOWN ON THE JACKPOT INDICATORS OF RESPONDENTS
PROGRESSIVE SLOT MACHINES WERE NOT DEDUCTIBLE AS AN ACCRUED EXPENSE AT
THE CLOSE OF ITS TAXABLE YEAR

 A. An Expense Is Not Deductible For Federal Tax Purposes Until There
Exists A Fixed Liability To Pay It, And Respondent Had No Obligation
To Pay The Jackpots Unless And Until Somebody Won Them

   1. Section 162(a) of the Internal Revenue Code allows a deduction
for "all the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business." A taxpayer who
uses the "cash receipts and disbursements method" of accounting
(I.R.C. Section 446(c)(1)) is entitled to deduct business expenses
only in the year in which they are paid (Tres. Reg. Sections
1.446-1(c)(1)(i), 1.461-1(a)(1)).  A taxpayer who uses the "accrual
method" of accounting (I.R.C. Section 446(c)(2)), by contrast, is
entitled to deduct expenses in the year in which they are "incurred,"
regardless of when they are actually paid (I.R.C. Section 162(a);
Treas. Reg. Section 1.461-1(a)(2)).  It is well settled that "'to
incur' means to become liable or subject to." Ox Fibre Brush Co. v.
Blair, 32 F.2d 42, 47 (4th Cir. 1929), aff'd sub nom. Lucas v. Ox
Fibre Brush Co., 281 U.S. 115 (1930).  "(A) thing for which there
exists no obligation to pay, either express or implied, cannot in law
be claimed to constitute an 'expense incurred.'" United States v. St.
Paul Mercury Indemnity Co., 238 F.2d 594, 598 (8th Cir. 1956).

   For almost sixty years, the standard for determining when an item
of expense is to be regarded as "incurred" for federal tax purposes
has been the "all events" test.  That test was first enunciated by
this Court in United States v. Anderson, 269 U.S. 422 (1926), where it
was held that an expense is deductible, not for the year in which an
obligation attaches "(i)n a technical legal sense," but for the year
in which "all the events (have) occur(red) which fix (its) amount * *
* and determine the liability of the taxpayer to pay it" (269 U.S. at
441).  The "all events" test has subsequently been incorporated in the
Treasury Regulations.  See Treas. Reg. Sections 1.446-1(c)(1)(ii)
(accruals in general), 1.451-1(a) (accrual of income), 1.461-1(a)(2)
(accrual of deductions).  The Court has described it as "a fundamental
principle of tax accounting" and as "the 'touchstone' for determining
the year in which an item of deduction accrues." United States v.
Consolidated Edison Co., 366 U.S. 380, 385 (1961).

   The "all events" test has two elements, both of which must be
satisfied before accrual of an expense is proper.  First, "all the
events (must) have occurred which establish the fact of the liability
giving rise to (the) deduction" (Treas. Reg. Section
1.446-1(c)(1)(ii)).  Second, the amount of the deduction must be
capable of being "determined with reasonable accuracy" (ibid.).  The
second part of the test permits a degree of computational flexibility.
 See Lucas v. American Code Co., 280 U.S. 445 450 (1930);  Treas. Reg.
Section 1.461-1(a)(2).  But the Regulations emphasize that the first
part of the test is absolute:  "no accrual shall be made in any case
(unless) all of the events have * * * occurred which fix the
liability" (ibid.).

   In determining whether a liability has become "fixed," and thus
constitutes an "expense incurred during the taxable year" for federal
tax purposes, this Court long ago made clear that "a liability does
not accrue as long as it remains contingent." Brown v. Helvering, 291
U.S. 193, 200 (1934).  Accord, e.g., Dixie Pine Co. v. Commissioner,
320 U.S. 516, 519 (1944).  "The prudent businessman," Justice Brandeis
wrote for the Court, "often sets up reserves to cover contingent
liabilities.  But they are not allowable as deductions." Lucas v.
American Code Co., 280 U.S. at 452 (footnote omitted).  Accord, Brown
v. Helvering, 291 U.S. at 201-202;  Lucas v. Structural Steel Co., 281
U.S. 264, 269 (1930).  To be deductible for federal tax purposes, "the
obligation to pay (must) ha(ve) become final and definite." Security
Flour Mills Co. v. Commissioner, 321 U.S. 281, 287 (1944).  It must be
"fixed and absolute." Brown v. Helvering, 291 U.S. at 201.  It must be
"unconditional." Lucas v. North Texas Lumber Co., 281 U.S. 11, 13
(1930).  "(T)he tax law requires," in short, "that a deduction be
deferred until 'all the events' have occurred that will make it fixed
and certain." Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 543
(1979) (quoting United States v. Anderson, 269 U.S. at 441).

   2. Contrary to the statements of the courts below (Pet. App. 2a,
14a), respondent's liability for the progressive slot machine jackpots
was not "fixed and certain," was plainly not "unconditional" or
"absolute," at midnight on the last day of its fiscal tax year.  At
that moment, there existed no person at all who could assert any
possible claim to those funds.  An expense may not be deducted
consistently with this Court's decisions until all the events have
occurred that unconditionally establish the fact of the taxpayer's
liability.  In the case of a progressive slot machine liability,
"(t)he one, indispensable such event is the winning of the progressive
jackpot by some fortunate gambler.  Until that event occurs, no actual
liability has been incurred." Nightingale v. United States, 684 F.2d
at 614.  Because "the casino's liability on each slot machine is
contingent * * * upon a winning pull" of the slot machine handle, that
event, as the Ninth Circuit has correctly held, is "most naturally
regarded as a condition precedent" to the creation of a fixed
obligation (id. at 614, 615).

   Since the progressive jackpots had not been won at the close of
respondent's fiscal year, respondent as of then had incurred no
liability, to pay those sums to anyone.  It was of course likely that
respondent would eventually incur a liability to pay those amounts,
since it was probable (given the law of averages) that some lucky
customer would eventually pay his money and hit the winning
combination of symbols.  But Nevada law places "no restrictions * * *
on gaming establishments for the setting of odds, provided that there
is actually a possibility that the winning combination of symbols can
appear" (Nightingale v. United States, 684 F.2d at 612).  Respondent
thus had discretion, subject to the law of averages, to defer
indefinitely into the future the time at which its liability would be
incurred.  The odds of winning a progressive jackpot at the casino
involved in Nightingale in fact varied "from one chance in 8,000 to
one chance in 9,765,625" (ibid.).  Nevada law, moreover, places "no
restrictions on the transferability of the accrued but unpaid (jackpot
amounts) on one progressive slot machine to another progressive slot
machine." Id. at 613.  See J.A. 78;  Nev. Gaming Reg. Section 5.110(5)
(1977).  Respondent thus had discretion, again subject to the law of
averages, to advance ever further into the future the time at which
its liability would be incurred, simply by removing a machine from the
floor and transferring the amount shown on its jackpot meter to
another machine with a more distant projected payoff date.

   Besides being able indefinitely to defer the date of actual
liability, respondent also had discretion to avoid incurring any
liability at all.  "If (a casino) were to close its doors and go out
of business," the Ninth Circuit observed in Nightingale, "it would not
owe the jackpots to anybody," a fact that "tends to show that there is
no present liability" (684 F.2d at 615).  The record in this case
likewise reveals that if respondent were to sell its business, cease
its gaming operations, or enter bankruptcy, or if its patrons were to
stop playing its slot machines, it would have no liability, and would
never have any liability, and would never have any liability, to pay
the jackpots to anyone.  See J.A. 20, 23, 43-44, 59, 78.  It may well
be, as respondent's witness stated below (id. at 63), that the
possibility of these things happening was "extremely remote and
speculative." But the odds of their happening, like the odds of a
customer's winning a progressive jackpot, were entirely a matter of
respondent's discretion.  And there is no reason to believe that the
odds against their happening, mathematically speaking, differed
appreciably from the odds against a customer's winning the jackpot on
a progressive slot machine programmed to pay off (say) at "one chance
in 9,765,625" (Nightingale, 684 F.2d at 612).

   3. In permitting respondent to take a current tax deduction for
progressive jackpots that nobody had yet won, the courts below relied
principally on the Nevada Gaming Commission's regulations.  As we have
noted, Section 5.110(2) of those rules, adopted in 1972, provides that
"(n)o payoff indicator shall be turned back to a lesser amount, unless
the amount by which the indicator has been turned back is actually
paid to a winning player" (J.A. 55).  "Th(is) (C)ommission
regulation," the court of appeals said, "makes the guaranteed jackpot
a fixed liability" (Pet. App. 2a).  The Claims Court similarly
reasoned that, "(e)ven if the progressive slot machines were to never
pay off, the set jackpot amounts indicated on the face of the
machine(s) would still continue to be an incurred liability fixed by
state law" (id. at 14a (emphasis omitted)).

   This reasoning is seriously flawed.  The Gaming Commission rule
does not require respondent to pay a jackpot unless and until it is
won by a customer.  The rule thus leaves respondent's year-end
liability in essentially the same contingent state that it was in, and
leaves it subject to exactly the same condition (the winning pull of
the handle) to which it was subject, before the Gaming Commission
began regulating progressive slot machines in 1972.  The effect of the
rule is simply to place a floor beneath the amount of respondent's
potential liability, while leaving the liability itself contingent.
By prohibiting casinos from turning back the jackpot indicators, the
rule ensures that those meters at all times will indicate the minimum
amount that a future patron will win if he hits the winning
combination of symbols.  The rule provides that the dollar amount of
the jackpot respondent offers can never ratchet down, but must always
stay the same or ratchet up;  it dictates that respondent's liability,
if and when it is incurred, will be in an amount proportional to the
number of times the machine has previously been played.  But because
the rule does not require respondent to pay a jackpot unless and until
it is actually won, the rule does not alter the contingent nature of
respondent's obligation at the close of its tax year.

   Of course, if respondent did have a fixed rather than a contingent
liability at the close of its tax year, the Gaming Commission rule
could well permit respondent to satisfy the second part of the "all
events" test.  Given the existence of that rule, arguably, it would be
possible for "the amount (of respondent's liability to) be determined
with reasonable accuracy" (Treas. Reg. Section 1.461-1(a)(2)).
Respondent, however, did not have an unconditional liability at that
time, and the Gaming Commission rule makes no difference in
determining whether this first, and essential, component of the "all
events" test has been satisfied.

   4. The Claims Court sought to support its result by reasoning that,
"were the actual winning handle pull held to be the last event
necessary to satisfy the 'all events' test, the effect * * * would be
to convert (respondent) from an accrual basis taxpayer to a cash basis
taxpayer" (Pet. App. 14a-15a (emphasis in original)).  This argument,
which respondent repeats (Br. in Opp. 5, 13), is both factually
erroneous and legally irrelevant.  The event that converts
respondent's offer of a jackpot from a contingent to a fixed
liability, and which thus justifies an accrual under the "all events"
test, is the winning pull of the slot machine handle.  Because the
money corresponding to the jackpots will typically be sitting in the
casino's bank account rather than in the slot machine (see pages 4-5,
supra), the customer's winning pull of the handle and his receipt of
payment from the casino will not normally be contemporaneous.  Once a
jackpot has been won, however, the casino may properly claim a
deduction, consistently with its accrual method of accounting,
regardless of whether it writes its customer a check for his winnings
at once or defers payment until the next day or the next year.  /2/
Respondent's assertion that our position effectively puts it on the
cash basis of accounting for progressive jackpots is thus incorrect.

   Even if respondent's assertion were factually correct, however, it
would be irrelevant to the outcome.  Under the "all events" test, an
expense may not be deducted until the taxpayer has incurred a fixed
liability to pay it.  A taxpayer that elected, for reasons adequate to
itself, to incur and to discharge its liabilities simultaneously could
not be heard to complain that the "all events" test had the effect of
requiring it "to report (those) expenses on the cash method" (Br. in
Opp. 13).

   5. While the facts of this case may seem exotic, they are a
variation on a theme that recurs frequently in tax jurisprudence.  It
often happens that a taxpayer is under a present obligation -- be it
statutory, regulatory, or contractual -- to make specified future
payments upon the happening of specified future events.  This Court
and the lower courts alike have held that such generalized and
incomplete obligations cannot justify current tax deductions under the
"all events" test, correctly reasoning that such liabilities remain
contingent until the requisite future events have transpired.  These
decisions show the error of the court of appeals' notion that a
deduction is allowable for federal tax purposes, without more, "if
there is an obligation to perform an act and the cost of performance
can be measured in money" (Pet. App. 2a).

   This Court's decision in Brown v. Helvering, supra, is particularly
instructive.  The taxpayer there was an insurance agent who received
"overriding commissions" on the sale of insurance policies (291 U.S.
at 195).  "As to each such commission there arose the obligation -- a
contingent liability -- to return a proportionate part in case of
cancellation" (id. at 199).  The taxpayer established on his books a
reserve account in which he recorded, at year's end, "an estimate of
the liability expected to arise out of (his) obligations to refund
(part of the commissions) because of cancellations which it was
expected would occur in future years" (id. at 197).  Based on past
experience, the taxpayer was able to predict with reasonable accuracy
the percentage of policies that would be cancelled, and thereby to
calculate with colorable precision the portion of the commissions that
he would ultimately be required to return (id. at 197-198, 201 & n.7).
 The taxpayer sought to deduct, as a business expense "incurred during
the taxable year," the amount added annually to this reserve (id. at
200).

   This Court unanimously sustained (291 U.S. at 200) the
Commissioner's disallowance of the claimed deduction:

         It is true that where a liability has "accrued during the
      taxable year" it may be treated as an expense incurred;  and
      hence as the basis for a deduction, although payment is not
      presently due, * * * and although the amount of the liability
      has not been definitely ascertained.  United States v. Anderson,
      (269 U.S. at 441).  * * * But no liability accrues during the
      taxable year on account of cancellations which it is expected
      may occur in future years, since the events necessary to create
      the liability do not occur during the taxable year.  Except as
      otherwise specifically provided by statute, a liability does not
      accrue as long as it remains contingent.

The Court acknowledged that there existed "a strong probability,"
judging from the taxpayer's past experience, that many of the policies
written during the year would be cancelled (291 U.S. at 201).  "But
expereicne taught also," the Court wrote, "that we are not dealing
here with certainties." Because the taxpayer's "liability * * *
arising from expected future cancellations * * * was not fixed and
absolute" at the close of his tax year (ibid.), the deduction that he
sought was denied.

   The lower courts have reached similar results in a variety of
factual settings.  In Trinity Construction Co. v. United States, 424
F.2d 302 (5th Cir. 1970), an employer had a contractual obligation to
pay future premiums on policies insuring the lives of key employees,
and it sought a current deduction for the premium payments expected to
be made over the contract term.  The Fifth Circuit denied a deduction;
 it noted that the employer's liability was contingent on the
employees' being alive when the premiums were due, and it held that an
expense may be deducted "only in the taxable year when the obligation
to pay it is unconditionally fixed" (424 F.2d at 305).  In Bennett
Paper Corp. v. Commissioner, 699 F.2d 450 (8th Cir. 1983), an employer
had a contractual obligation to make future payments to a
profit-sharing plan on account of employees' past services, provided
that the individuals were still employed when the payments were due.
The Eighth Circuit denied a current deduction;  it noted that "the
forfeiture provision made the * * * liability a contingent liability,"
and it held that a "liability is not fixed until all the conditions
for payment are met" (699 F.2d at 453).  In World Airways, Inc. v.
Commissioner, 62 T.C. 786 (1974), aff'd, 564 F.2d 886 (9th Cir. 1977),
an airline had a contractual obligation to make future payments for
statutorily-required engine overhauls, and it sought a current
deduction for amounts expected to be paid over the contract term.  The
Tax Court denied a deduction;  it noted that the taxpayer "was under
no obligation to make any payment unless an overhaul was actually
performed," and it held that an expense is not deductible unless the
taxpayer's liability is "absolutely fixed in the year of accrual" (62
T.C. at 802, 804).

   The rationale of these cases shows the error of the holding below.
Respondent's obligation was in the nature of the offer of a prize, a
prize that might be won if and when some future patron paid his money
and plucked the winning combination of stars, bars, and fruit.  So
long as respondent chose to stay in the gambling business, the Gaming
Commission's rule required that this offer be irrevocable.  But
respondent's liability on the offer was nevertheless contingent until
a future customer accepted the offer by satisfying the preconditions
for payment.  One does not have an "unconditional liability" unless
there exists some person or entity to whom he is liable, and
respondent was not liable to anyone until somebody won the jackpot.

 B. In Permitting Respondent To Take A Current Tax Deduction For A
Contingent Future Expense, The Court Of Appeals Misapprehended The
Differences That This Court Has Recognized Between Tax And Financial
Accounting

   Following the promulgation of the Gaming Commission's rule in 1972,
respondent's accounts determined that there thenceforth existed a
sufficient likelihood that respondent's jackpots would be paid to
require that the year-end amounts shown on its payoff indicators "be
reported on the financial records of the corporation as accrued
liabilities" (J.A. 68, 69).  The accountants explained that this
treatment was required in order properly to match respondent's
expenses with its income.  "Because the amount of the liability for
accrued but unpaid * * * jackpots increases in direct proportion to
the volume of play on the machines, and because the income is recorded
during the same period in which the play occurs * * * , the
recordation of the increase in the accrued but unpaid * * * jackpots
as a reduction of the slot machine gross profit in the same period
results in a proper matching of revenues and expenses and clearly
reflects income" (id. at 68).  The accountants testified that this
treatment "conform(ed) with generally accepted accounting principles"
and that any other treatment "could result in a material distortion of
(respondent's) income" (id. at 69).

   The court of appeals appeared to find these statement persuasive in
permitting a corresponding deduction for tax purposes.  It reasoned
that "the accounting method used by (respondent) results in allocation
of the expense to the year in which the revenues were earned," and so
concluded that respondent's "method of accounting accurately reflects
the casino's income and expenses" (Pet. App. 2a-3a).  "If we were to
require that the deduction of a jackpot liability be deferred" until
the jackpot was actually won, the court of appeals said, it would
mismatch respondent's revenue and expenses and thus "distort taxable
income for the year of payment" (id. at 2a).

   In thus reasoning, the Federal Circuit ignored the import of this
Court's decisions emphasizing the critical differences between tax and
financial accounting.  The court of appeals' misapplication of the
"all events" test seems largely traceable to its neglect of this
distinction, a distinction that is crucial to a proper understanding
of the role that the "all events" test plays in the tax law.

   1. Taxable income is generally computed "under the method of
accounting on the basis of which the taxpayer regularly computes his
income in keeping his books" (I.R.C. Section 446(a)).  Section 446(b),
however, sets forth an exception to this rule, providing that, if the
method of accounting used by the taxpayer "does not clearly reflect
income, the computation of taxable income shall be made under such
method as, in the opinion of the (Commissioner), does clearly reflect
income." The Regulations provide that "(t)he term 'method of
accounting' includes not only the overall method of accounting of the
taxpayer," such as the cash method or the accrual method, "but also
the accounting treatment of any item." Treas. Reg. Section
1.446-1(a)(1).  The Regulations categorically state that "no method of
accounting is acceptable unless, in the opinion of the Commissioner,
it clearly reflects income." Treas. Reg. Section 1.446-1(a)(2).

   Section 446 and its accompanying regulations obviously vest the
Commissioner with "broad powers in determining whether accounting
methods used by a taxpayer clearly reflect income." Commissioner v.
Hansen, 360 U.S. 446, 467 (1959).  This Court early noted that the
general rule permitting use of the taxpayer's usual accounting
practice "is expressly limited to cases where the Commissioner
believes that the accounts clearly reflect the net income." Lucas v.
American Code Co., 280 U.S. at 449.  And the Court recently reaffirmed
that the Commissioner in the accounting area has "'(m)uch latitude for
discretion'" and that "his interpretation of the statute's
clear-reflection standard 'should not be interfered with unless
clearly unlawful.'" Thor Power Tool Co., 439 U.S. at 532 (quoting
Lucas v. American Code Co., 280 U.S. at 449).  Accord, e.g., United
States v. Catto, 384 U.S. 102, 114 (1966);  Schlude v. Commissioner,
372 U.S. 128, 133-134 (1963);  American Automobile Ass'n v. United
States, 367 U.S. 687, 697-698 (1961);  Automobile Club v.
Commissioner, 353 U.S. 180, 189-190 (1957);  Brown v. Helvering, 291
U.S. at 203.

   Congress's decision to grant the Commissioner "broad powers" to
depart from the taxpayer's usual accounting practice in computing
taxable income owes in part to "the vastly different objectives that
financial and tax accounting have." Thor Power Tool Co., 439 U.S. at
542.  "The primary goal of financial accounting is to provide useful
information to management, shareholders, (and) creditors" and "to
protect these parties from being misled" (ibid.).  Financial
accounting accordingly "has as its foundation the principle of
conservatism, with its corollary that possible errors in measurement
(should) be in the direction of understatement rather than
overstatement of net income" (ibid.; original quotation marks
omitted).  "(T)he major responsibility of the Internal Revenue
Service," by contrast, "is to protect the public fisc," so that
"understatement of income is not destined to be its guiding light"
(ibid.).  Given this diversity, even contrariety, of objectives, to
say that a taxpayer's accounting practice "'is in accord with
generally accepted commercial accounting principles' * * * is not to
hold that for income tax purposes it so clearly reflects income as to
be binding on the Treasury." American Automobile Ass'n v. United
States, 367 U.S. at 693 (footnote omitted).

   This Court's cases demonstrate that divergence between tax and
financial accounting is especially common where, as here, "a taxpayer
seeks a current deduction for estimated future expenses or losses"
(Thor Power Tool Co., 439 U.S. at 541).  Financial accounting rules,
implementing the principle of conservatism, "typically require that a
liability be accrued as soon as it can reasonably be estimated" (id.
at 543 & n.20 (citing authorities)).  Accruals of such anticipated
liabilities are commonly made by establishing on the corporation's
books a reserve account to cover amounts reasonably expected to be
paid in the future.  See, e.g., Commissioner v. Hansen, 360 U.S. at
448 (reserve to cover contingent liability in event of nonperformance
of guarantee);  Brown v. Helvering, 291 U.S. at 196-197 (reserve to
cover expected liability in event of insurance policy cancellations);
Lucas v. American Code Co., 280 U.S. at 447 (reserve to cover
contingent liability on contested lawsuit).

   But while "(t)he prudent businessman often sets up reserves to
cover contingent liabilities(,) * * * they are not allowable as
deductions" (Lucas v. American Code Co., 280 U.S. at 452).  Rather,
"the tax law requires that a deduction be deferred until 'all the
events' have occurred that will make it fixed and certain" (Thor Power
Tool Co., 439 U.S. at 543 (quoting United States v. Anderson, 269 U.S.
at 441)).  "(T)he 'all events' test * * * is designed to assure that
taxpayers will not obtain deductions for expenditures that might never
occur," and it thus "seeks certainty of liability rather than
probability" (World Airways, Inc., 62 T.C. at 805 (citing Brown v.
Helvering, 291 U.S. at 201)).  By insisting upon certainty of
liability, the "all events" test helps guarantee that taxable income
will be computed in a manner that "clearly reflect(s) income" (I.R.C.
Section 446(b)), for "(i)t has long been held that in order truly to
reflect the income of a given year, all the events must occur in that
year which fix the amount and the fact of the taxpayer's liability"
(Dixie Pine Co. v. Commissioner, 320 U.S. at 519).

   2. The court of appeals departed from these well-established
principles in sustaining respondent's deduction.  It may well be, as
respondent contended below, that the year-end accrual of its
contingent slot machine liabilities "conform(ed) with generally
accepted accounting principles" (J.A. 69) because there was "a
reasonable expectancy that * * * payment (would) be made" (id. at 47).
 There was surely a probability, gambling being what it is, that
respondent would eventually incur liability for its progressive slot
machine jackpots.  Although the timing of that liability's incurrence
was subject to respondent's discretion in setting odds, there was also
a mathematical possibility that it might be incurred the very next
day.  Thus, "the principle of conservatism" (Thor Power Tool Co., 439
U.S. at 542) may well have required respondent to set up a reserve for
those items at once and show them as a liability on its books.  "(B)ut
the accountant's conservatism cannot bind the Commissioner in his
efforts to collect taxes" (id. at 543).  Although "estimates,
probabilities, and reasonable certainties * * * may be useful, even
essential, in giving shareholders and creditors an accurate picture of
a firm's overall financial health," the tax law, "with its mandate to
preserve the revenue, can give no quarter to uncertainty" (ibid.).
"Only a few reserves voluntarily established as a matter of
conservative accounting are authorized by the Revenue Acts." Brown v.
Helvering, 291 U.S. at 201-202 (quoted in Thor Power Tool Co., 439
U.S. at 543-544).  A reserve for contingent slot machine liabilities
is not among those so authorized.  /3/

   Contrary to the court of appeals' statement, therefore, the fact
that respondent's method of accounting arguably "results in allocation
of the expense to the year in which the revenues were earned" (Pet.
App. 3a) does not control the outcome here.  In American Automobile
Ass'n v. United States, 367 U.S. 687 (1961), this Court held that "a
taxpayer must recognize prepaid income when received, even though this
would mismatch expenses and revenues in contravention of 'generally
accepted commercial accounting principles'" (Thor Power Tool Co., 439
U.S. at 541 (quoting American Automobile Ass'n, 367 U.S. at 690)).
The Court acknowledged that the taxpayer's accounting method, by
taking prepaid dues into income ratably over the future years during
which it would render the paid-for services, "doubtless presents a
rather accurate image of the total financial structure" (367 U.S. at
692).  But the Court nonetheless held that the taxpayer's reserve
method "fail(ed) to respect the criteria of annual tax accounting and
(could) be rejected by the Commissioner" (ibid.).

   The same reasoning applies in the present case.  By establishing a
reserve for its progressive jackpot liabilities, and by making
additions to that reserve ratably with its realization of slot machine
income, respondent may well have produced an accurate matching of its
revenues and expenses for purposes of financial accounting.  But that
fact provides no basis for permitting respondent currently to deduct
those contingent liabilities on its federal tax return.

   3. As this Court noted in American Automobile Ass'n, 367 U.S. at
694-697, Congress once adopted, albeit only briefly, provisions that
would have permitted taxpayers to deduct anticipated expenses by a
reserve mechanism similar to that used by respondent.  As originally
enacted in 1954, Section 462 of the Code allowed a deduction for "a
reasonable addition to (a) reserve for estimated expenses," with
"estimated expenses" being defined to include deductions "attributable
to the income of the taxable year or prior taxable years." Internal
Revenue Code of 1954, Section 462(a) and (d)(1)(B), 68A Stat. 158-159.
 Section 452 as originally enacted similarly permitted accrual-basis
taxpayers to defer recognition of pre-paid income until later years in
which the income was deemed "earned." Id. Section 452(a), 68A Stat.
152.  Congress was moved to enact these provisions by dissatisfaction
with the fact that, "as a result of court decisions and rulings, there
ha(d) developed many divergencies between the computation of income
for tax purposes and income for business purposes as computed under
generally accepted accounting principles." H.R. Rep. 1337, 83d Cong.,
2d Sess. 48 (1954).  See American Automobile Ass'n, 367 U.S. at 694.
Sections 452 and 462 were designed to bring "(t)ax accounting * * *
more nearly in line with accepted business accounting by allowing
pre-paid income to be taxed as it is earned rather than as it is
received, and by allowing reserves to be established for known future
expenses." S. Rep. 372, 84th Cong., 1st Sess. 3 (1955).  See American
Automobile Ass'n, 367 U.S. at 703-704 (Stewart, J., dissenting).

   The change brought about by Sections 452 and 462 was short-lived.
Congress repealed those provisions retroactively less than one year
later, prompted by warnings from the Treasury Department "that the
proposed endorsement of such (methods of) accounting would have a
disastrous impact on the Government's revenue." American Automobile
Ass'n, 367 U.S. at 695.  See Act of June 15, 1955, ch. 143, Sections
1, 3, 69 Stat. 134-135 (repealing 26 U.S.C. (1952 ed. & Supp. II 1954)
452, 462);  H.R. Rep. 293, 84th Cong., 1st Sess. 3 (1955) (noting
increase in the Treasury's projection of estimated revenue loss from
$47 million to $1 billion).  The taxpayer in American Automobile Ass'n
contended that Congress's retroactive repeal of these provisions
should not be interpreted to preclude use of the reserve method of tax
accounting that it employed, but the Court held that this contention
"'varnish(ed) nonsense with the charm of sound'" (367 U.S. at 695).
"(T)he cold fact," the Court said, "is that (Congress) repealed the
only law incontestably permitting the practice upon which the
(taxpayer) depends" (ibid.).

   Congress thus has specifically considered and, upon
reconsideration, rescinded a provision that would have achieved the
very result that the court of appeals here adopted.  By discarding the
"all events" test, the now-repealed Section 462 was designed to bring
tax accounting into line with "generally accepted accounting
principles which require all determinable liabilities relating to
reported income to be taken into account" (S. Rep. 1622, 83d Cong., 2d
Sess. 63 (1964)).  The court of appeals had no license, by misapplying
the "all events" test, to resurrect the rule that Congress
deliberately discarded.  /4/

   4. In sustaining respondent's claimed deductions, the court of
appeals also ignored this Court's warning about "the well-known
potential for tax avoidance" (Thor Power Tool Co., 439 U.S. at 538)
inherent in accounting techniques of the sort involved here.
Respondent is unquestionably entitled to deduct its progressive slot
machine liabilities if and when the jackpots are won by its customers.
 The dispute here, as in "all events" cases generally, concerns the
proper timing of deductions, not the intrinsic propriety of the
deductions themselves.  But to suggest, as respondent seems to do (Br.
in Opp. 4, 11-12), that this consideration diminishes the importance
of the dispute is to ignore the time value of money.  A deduction
today is worth more than a deduction one, five, or twenty years from
now.  If the accruals involved are sufficiently large, their time
value alone, as this case demonstrates (Pet. App. 1a, 21a), can
involve huge amounts of revenue.

   When respondent's customers gamble unsuccessfully on its
progressive slot machines, the monies lost represent income that is
subject at once to respondent's use and enjoyment.  Although
respondent will in all probability be required ultimately to return a
portion of those funds as jackpots to its customers, it is free to
invest the money, and to earn additional income upon it, until the
jackpots are actually won.  The time at which the jackpots will
actually be won, and how large they will be at that time, are
essentially within respondent's control.  It has discretion to
determine when a machine will be placed in service, what the initial
jackpot will be, and by what rate that amount will progress.  Given
its virtually unrestricted discretion in setting odds, respondent has
the capacity, subject to the law of averages, to determine each
machine's expected payoff date.  And given its ability to transfer
jackpot amounts from one machine to another, respondent has the
capacity, again subject to the law of averages, to defer indefinitely
into the future the time at which its duty to make payment to its
customers will arise.

   Under these circumstances, the method of accounting that respondent
favors unquestionably contains the "potential for tax avoidance" (Thor
Power Tool Co., 439 U.S. at 538).  As the Ninth Circuit pointed out in
Nightingale, acceptance of respondent's accounting treatment for
progressive jackpots would permit casinos "to overcome the restraints
of annual accounting in a perfectly legal way.  They could put extra
machines on the floor on the last day of the tax year with whatever
initial jackpot they chose and with whatever odds they liked.  Then
they could take a current deduction for the full amount even though
payment of the jackpots might not occur for many years" (684 F.2d at
615).  There is of course no suggestion that this happened here, and
it is possible that the Commissioner would have adequate tools with
which to respond if it had.  See Pet. App. 16a-17a;  Nightingale, 684
F.2d at 615.  But the inherent manipulability of respondent's
accounting practice demonstrates its inappropriateness "in a tax
system designed to ensure as far as possible that similarly situated
taxpayers pay the same tax" (Thor Power Tool Co., 439 U.S. at 544).
"If management's election among (such) options were dispositive for
tax purposes, a firm * * * could decide unilaterally -- within limits
dictated only by its accountants -- the tax it wished to pay" for a
particular year.  "Such unilateral decisions would not just make the
Code inequitable;  they would make it unenforceable." Ibid.

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   ROGER M. OLSEN

      Acting Assistant Attorney General

   ALBERT G. LAUBER, JR.

      Assistant to the Solicitor General

   RICHARD FARBER

   WILLIAM A. WHITLEDGE

      Attorneys

   FEBRUARY 1986

   /1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code of 1954 (26 U.S.C.), as amended and as in effect
for the tax years at issue (the Code or I.R.C.).

   /2/ The sole exception would be where the casino contested its
liability.  See, e.g., Dixie Pine Co. v. Commissioner, 320 U.S. at 519
(all the events necessary to fix a taxpayer's liability have not
occurred where "the liability is contingent and is contested by the
taxpayer");  J.A. 77 (Nevada gaming authorities will dismiss a
complaint alleging nonpayment of a progressive jackpot upon
determining that "the gaming establishment justifiably refused to pay
the progressive jackpot because of cheating by the customer or other
valid reasons.").

   /3/ Cf. I.R.C. Section 166(c) (authorizing bad debt reserves in
general);  I.R.C. Sections 585, 586, 593 (authorizing bad debt
reserves for banks and S & L associations);  I.R.C. Section 807
(authorizing specialized reserves for life insurance companies).

   /4/ Congress more recently has amended the Code to clarify the
requirements for accrual of certain deductions, providing that
expenses generally may not be accrued until "economic performance" has
occurred.  Deficit Reduction Act of 1984, Pub. L. No. 98-369, Section
91(a), 98 Stat. 598-601 (adding I.R.C. Section 461(h) and (i)).
Congress set forth for the first time a statutory definition of the
"all events" test, providing that "the all events test is met with
respect to any item if all events have occurred which determine the
fact of liability and the amount of such liability can be determined
with reasonable accuracy" (I.R.C. Section 461(h)(4)).  This
definition, of course, is the same as that previously enunciated by
this Court and by the Treasury Regulations.  See page 12, supra.  The
1984 Act generally provides that, "in determining whether an amount
has been incurred with respect to any item during any taxable year,
the all events test shall not be treated as met any earlier than when
economic performance with respect to such item occurs" (I.R.C. Section
461(h)(1)).  Where the taxpayer's liability arises from the provision
of goods or services, or from the use of property, "economic
performance" is generally deemed to occur when the goods or services
are actually provided, or when the property is actually used (I.R.C.
Section 461(h)(2)(A) and (B)).  Where the taxpayer's liability arises
from a worker's compensation statute or tort, "economic performance"
is deemed to occur when payments to the recipient are actually made
(I.R.C. Section 461(h)(2)(C)).  An exception from the general rule is
made for "certain recurring items" (I.R.C. Section 461(h)(3)).  Such
items may be deducted in the year preceding economic performance,
provided that the "all events" test is otherwise satisfied, that
economic performance actually occurs within a "reasonable period"
(typically, 8 1/2 months) after the close of the tax year, and that
such accrual is consistent with financial accounting practices (I.R.C.
Section 461(h)(3)(A) and (B)).  These provisions, which are generally
effective for post-1983 tax years (Pub. L. No. 98-369, Section 91(g),
98 Stat. 608), have no application to the instant case, which involves
respondent's tax liabilities for 1973-1977.