Court Opinion

ID: 9430533
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:29:57.868574+00
Date Added: 2024-06-11T17:23:24.921984
License: Public Domain

*607Justice Stevens,
with whom The Chief Justice joins,
dissenting.
Unlike the Court, see ante, at 605-606, I believe that the distinction between the nonpayment of an existing obligation and the nonexistence of an obligation is of controlling importance in this case.
It is common ground that the taxpayer can accrue as a deduction the jackpots in its progressive slot machines only if “all the events have . . . occurred which fix the liability.” Treas. Reg. § 1.461-l(a)(2), 26 CFR § 1.461-l(a)(2) (1985). See, e. g., Security Flour Mills Co. v. Commissioner, 321 U. S. 281, 284, 287 (1944); Dixie Pine Products Co. v. Commissioner, 320 U. S. 516, 519 (1944); Brown v. Helvering, 291 U. S. 193, 200-201 (1934). See generally United States v. Consolidated Edison Co. of New York, 366 U. S. 380, 385-386 (1961). The question is whether an “obligation” created by the rules of a state gaming commission and defeasible at the election of the taxpayer is “fixed” within the meaning of the Treasury Regulation. To me, the answer is clearly “no.”
“Under Nevada law,” if the taxpayer in this case “were to surrender its gaming license, it would no longer be subject to the gaming laws and regulations and could thus avoid the payment of the liability.” App. 23. Thus, “the bankruptcy of the [taxpayer], or the surrender of its gaming license could relieve it of its obligation.” Id., at 44.
On these facts, the taxpayer has no present liability to accrue. Rather, the taxpayer’s obligation to pay the jackpots in this case resembles the taxpayer’s obligation to pay the cost of overhauling its aircraft engines and airframes in World Airways, Inc. v. Commissioner, 62 T. C. 786 (1974), aff’d, 564 F. 2d 886 (CA9 1977). In that case, the Tax Court held that the taxpayer, an airline, did not satisfy the “all events” test and hence could not accrue and deduct any portion of these costs, 62 T. C., at 802, 805 — despite the existence of contracts obligating the taxpayer to pay, upon the completion of an overhaul, an amount for each hour of *608flight time since the previous overhaul, id., at 791-793, and a statutory obligation to overhaul its engines and airframes after a specified number of flight hours, id., at 803. Of critical importance to the decision before us today, the court distinguished between the nonpayment of a legal obligation and the nonexistence of an obligation by considering the taxpayer’s liability in the event of a bankruptcy:
“The bankruptcy of petitioner [the taxpayer] or the crash or permanent grounding of an aircraft might conceivably relieve petitioner of the payment of overhaul costs. The occurrences of any of these contingencies, however, would not relieve petitioner of an existing obligation to pay any overhaul costs. Rather, the occurrence would mean that no obligation to pay would ever come into existence. Petitioner has not shown that its liability for the accrued overhaul costs was absolutely fixed in the year of accrual. The contingencies referred to would act to prevent a potential liability from coming into existence.” Id., at 804 (emphasis in original).
The court recognized that the risk of bankruptcy or disaster was remote. But it added that “there exists another contingency whose occurrence is not unlikely”: “Petitioner has sold five piston aircraft and one jet aircraft since 1965. The five piston aircraft owned by petitioner during 1965, and 1966, were sold prior to the time when major airframe overhaul was required.” Ibid.
Here, too, the taxpayer has no obligation that could be discharged in a bankruptcy court — a fact that confirms that it has no present liability to pay the jackpots on its progressive slot machines. And there likewise exists a contingency under which it is not at all unlikely that a slot machine owner would elect to escape its liability. If the gross amount of the accruals on these machines should ever exceed the net value of the business —perhaps as a result of shrewd management — it could liquidate at a profit without having any liabil*609ity to anyone for what the Court mistakenly describes as a “fixed liability.” By simply tendering its gaming license the taxpayer would avoid its liability on the jackpots. This option is exercisable in the sole discretion of the taxpayer at any point in time. My research has revealed no other instance in which the Commissioner has been forced to allow accrual of a deduction when the expense deducted may be avoided entirely at the election of the taxpayer. This feature of the deduction before us unquestionably contains the “potential for tax avoidance,” Thor Power Tool Co. v. Commissioner, 439 U. S. 522, 538 (1979), and I think it lies well within the Commissioner’s authority to interpret the Regulation to forbid it, see Lucas v. American Code Co., 280 U. S. 445, 449 (1930). I respectfully dissent.