PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT
                ____________

                    No. 14-3961
                   ____________

               GIANT EAGLE, INC.,

                                    Appellant

                         v.

    COMMISSIONER OF INTERNAL REVENUE



     On Appeal from the United States Tax Court
          (D. C. Civil Action No. 11910-12)
     Tax Court Judge: Honorable Harry A. Haines


              Argued on April 29, 2015

Before: FISHER, HARDIMAN and ROTH, Circuit Judges

            (Opinion filed: May 6, 2016)
Robert M. Barnes, Esquire       (Argued)
Richard I. Halpern, Esquire
Marcus & Shapira
301 Grant Street
One Oxford Centre, 35th Floor
Pittsburgh, PA 15219

                          Counsel for Appellant




Julie C. Avetta, Esquire          (Argued)
Jonathan S. Cohen, Esquire
Bethany B. Hauser, Esquire
Gilbert S. Rothenberg, Esquire
United States Department of Justice
Tax Division
950 Pennsylvania Avenue, N.W.
P.O. Box 502
Washington, DC 20044

                          Counsel for Appellee



                       OPINION


ROTH, Circuit Judge:




                            2
      Benjamin Franklin opined that “in this world nothing
can be said to be certain, except death and taxes.”1 But the
advent of the “all events” test renders Franklin’s
pronouncement at best partially correct.

       The Tax Code does not limit the availability of
deductions to expenses for which payment is certain. Rather,
accrual method taxpayers are expressly permitted to deduct
expenses before they are paid, so long as “all events have
occurred which determine the fact of liability and the amount
of such liability can be determined with reasonable
accuracy.”2 A codified legal fiction affords taxpayers even
greater flexibility in the realm of recurring expenses, for
which an anticipated liability may be deemed “incurred” even
if the predicate costs are not themselves incurred during the
year a deduction is claimed.3

        Here, by disallowing deductions claimed by a
supermarket chain based on rewards shoppers had earned but
not yet redeemed, the Tax Court misapplied the “all events”
test as it applies to recurring expenses. For that reason, we
will reverse and remand this case to the Tax Court with
instructions to grant judgment in favor of Giant Eagle, Inc.,
and its subsidiaries (collectively, Giant Eagle) on the basis
that the claimed deductions are permissible under the “all
events” test.
                                I.


1
   Letter from Benjamin Franklin to Jean Baptiste Le Roy (Nov. 13,
1789), in 10 The Writings of Benjamin Franklin 69 (Albert Henry Smith
ed. 1907).
2
  26 U.S.C. § 461(h)(4).
3
  

                                 3
        Giant Eagle operates a chain of retail supermarkets,
pharmacies, gas stations, and convenience stores in the
Northeastern and Midwestern United States. Giant Eagle
uses the accrual method of accounting to determine and report
its income tax liability.4

                                   A.

        Giant Eagle’s fuel rewards program traces its origins
to the supermarket chain’s introduction in 1991 of a
customer-loyalty program called Advantage Cards. Initially,
customers who presented an Advantage Card at checkout
received discounts on promotion items and/or entire
purchases. Then, in response to skyrocketing gasoline prices
in the late 1990s and early 2000s, Giant Eagle opened
gasoline stations on the premises of many of its supermarkets,
where Advantage Cardholders received discounts on the
purchase of gasoline, ranging from three to seven cents per
gallon. However, Giant Eagle incurred significant losses on
its first few years of gasoline sales, and the fuel discounts
failed to increase supermarket traffic.

       In April 2004, Giant Eagle revised the Advantage Card
program. The new program, called “fuelperks!”, linked
customers’ rewards at the pump to prior grocery purchases,
i.e., for every $50 spent on qualifying groceries, an
Advantage Cardholder earned a ten cents-per-gallon discount
on gas. A brochure distributed to customers set out the
program’s ground rules, including that “discounts expire on
the last day of the month, 3 months after they are earned,”

4
  Giant Eagle, Inc., a Pennsylvania corporation, filed a consolidated
income tax return accounting for its subsidiaries’ revenue and liabilities
during each tax year at issue.




                                    4
and that “[t]he promotion is valid for a limited time only and
may end at any time without prior notice.” Giant Eagle did
not in fact end the promotion or revoke any accumulated
discounts in 2006 or 2007, the tax years at issue. Moreover,
fuelperks! led to a dramatic increase in Giant Eagle’s
supermarket sales.

                              B.

       On its 2006 and 2007 corporate income tax returns,
Giant Eagle claimed a deduction for the discounts its
customers had accumulated but, at year’s end, had not yet
applied to fuel purchases. Giant Eagle computed the
deduction by (1) ascertaining the total dollar amount spent at
its supermarkets on discount-qualifying items, (2) dividing
that figure by 50 to determine the number of outstanding
accumulated discounts, and (3) multiplying the quotient by
$.10 to determine the face value of the discounts. Next, Giant
Eagle (4) multiplied the discounts’ face value by the historical
redemption rate of discounts in their expiring month, and
(5) multiplied that product by the average number of gallons
purchased in a discounted fuel sale.

       From the outset of the fuelperks! program, Giant Eagle
tracked customers’ redemption of accumulated discounts and
used the historical averages to determine the amount of the
claimed deductions. Thus, it did not base its computations of
(4) and (5) on the number of discounts actually redeemed or
the number of gallons of gasoline actually sold in the three
months after year’s end. The Commissioner of Internal
Revenue disallowed the deductions for the 2006 and 2007 tax
years, which totaled $3,358,226 and $313,490, respectively.
                              C.




                               5
       Giant Eagle petitioned the U.S. Tax Court for
redetermination of its 2006 and 2007 income tax liabilities on
two grounds. First, it argued that the discounts accumulated
but not applied by year’s end satisfied the “all events” test
because Giant Eagle’s liability became fixed upon issuance of
the discounts. Alternatively, Giant Eagle urged that the
accrued discounts be treated as sales-accompanying “trading
stamps or premium coupons,” enabling it to offset the
estimated costs against gross receipts from grocery sales.5

       The Tax Court rejected both arguments. It found that
Giant Eagle’s claimed deductions did not satisfy the “all
events” test because the purchase of gasoline functioned as a
condition precedent to customers’ redemption of discounts
earned at checkout. Accordingly, the court reasoned, any
fuelperks!-related liability became fixed only after customers
applied the accumulated discounts to a fuel purchase, which,
in the case of the disallowed deductions, occurred after the
end of the tax year. Additionally, the Tax Court held that the
Treasury Regulation governing “trading stamps” did not
apply to the discounts that Giant Eagle customers accrued
through fuelperks! because the gasoline discounts were not
redeemable in “merchandise, cash, or other property,” as
required under a 1978 revenue ruling.6 For these reasons, the
Tax Court sustained the Commissioner’s deficiency
determinations for both tax years.

          Giant Eagle appealed.




5
    See Treas. Reg. § 1.451-4(a)(1).
6
    See Rev. Rul. 78-212, 1978-1 C.B. 139.




                                     6
                                  II.7

       The “all events” test derives from dictum in a 1926
Supreme Court decision, explaining that a liability may
accrue even “in advance of the assessment of a tax” if “all the
events [] occur which fix the amount of the tax and determine
the liability of the taxpayer to pay it.”8 The test has since
been refined, prescribed as a Treasury Regulation, and
eventually codified. Today, 26 U.S.C. § 461 and its
implementing regulations limit accrual method taxpayers’
deductibility of liabilities as follows:

        Under an accrual method of accounting, a
        liability . . . is incurred, and generally is taken
        into account for Federal income tax purposes, in
        the taxable year in which all the events have
        occurred that establish the fact of the liability,
        the amount of the liability can be determined
        with reasonable accuracy, and economic
        performance has occurred with respect to the
        liability.9

       The Treasury Secretary prescribed a supplementary
regulation defining “economic performance” in the context of
rebates and refunds:
7
  The Tax Court had jurisdiction over Giant Eagle’s petition pursuant to
26 U.S.C. §§ 6213(a), 6214(a), and 7442. We exercise exclusive
appellate jurisdiction under 26 U.S.C. § 7482(a)(1). We review de novo
whether a taxpayer has satisfied the “all events” test, see In re Harvard
Indus., 

, 450 (3d Cir. 2009), but we review the Tax Court’s
factual findings for clear error, see Historic Boardwalk Hall, LLC v.
Comm’r, 

, 447 n.48 (3d Cir. 2012).
8
  United States v. Anderson, 

, 441 (1926).
9
  Treas. Reg. § 1.461-1(a)(2)(i).




                                   7
          If the liability of a taxpayer is to pay a rebate,
          refund, or similar payment to another person
          (whether paid in property, money, or as a
          reduction in the price of goods or services to be
          provided in the future by the taxpayer),
          economic performance occurs as payment is
          made to the person to which the liability is
          owed.10

      Nonetheless, “certain recurring items” are subject to a
more relaxed version of the “all events” test:

          Notwithstanding [the general rule that “the all
          events test shall not be treated as met any earlier
          than when economic performance with respect
          to such item occurs”]11 an item shall be treated
          as incurred during any taxable year if—

                  (i) the all events test with respect to such
                  item is met during such taxable year
                  (determined without regard to [26 U.S.C.
                  § 461(h)(1)]),

                  (ii) economic performance with respect
                  to such item occurs within the shorter
                  of—




10
     

11
     26 U.S.C. § 461(h)(1).




                                   8
                        (I) a reasonable period after the
                        close of such taxable year,12 or

                        (II) 8 ½ months after the close of
                        such taxable year,

                (iii) such item is recurring in nature and
                the taxpayer consistently treats items of
                such kind as incurred in the taxable year
                in which the requirements of clause (i)
                are met, and

                (iv) either—

                        (I) such item is not a material
                        item, or

                        (II) the accrual of such item in the
                        taxable year in which the
                        requirements of clause (i) are met
                        results in a more proper match
                        against income than accruing such
                        item in the taxable year in which
                        economic performance occurs.13

For purposes of the “recurring item” exception, “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


12
   A Treasury Regulation defines a “reasonable period” as “[t]he date the
taxpayer files a timely (including extensions) return for that taxable
year.” Treas. Reg. § 1.461-5(b)(1)(ii)(A).
13
   26 U.S.C. § 461(h)(3)(A).




                                   9
of such liability can be determined with reasonable
accuracy.”14

       The Commissioner does not contest that fuelperks!
rewards qualify as both “a rebate, refund, or similar payment”
and a “recurring expense” subject to the less onerous
“economic performance” requirement.               Moreover, the
Commissioner concedes that Giant Eagle calculated its
anticipated fuelperks!-related liability “with reasonable
accuracy,” and that economic performance had occurred by
the time of Giant Eagle’s tax filing. Thus, the only issue on
appeal is whether “the fact of liability” was fixed at year’s
end15 -- that is, before the end of the tax year, had Giant Eagle
become liable to pay the fuelperks! 10-cent discount to its
customers who had purchased qualifying groceries with their
Advantage Cards.

                                    A.

       Two seminal Supreme Court decisions frame our
discussion of the “all events” test’s fixed liability
requirement. In its first decision applying the “all events” test
after its codification, the Court held, in United States v.
Hughes Properties, Inc., that a casino operator was entitled to
deduct the annual increase in its progressive jackpot payoff
amounts, including for jackpots not won by year’s end.16
While the Court acknowledged that there remained an

14
   

15
    Notably, the “matching requirement” contained in 26 U.S.C. §
461(h)(3)(A)(iv)(II) is “deemed satisfied . . . [i]n the case of a liability
described in [Treasury Regulation § 1.461-4](g)(3) (rebates and
refunds).” Treas. Reg. § 1.461-5(b)(5)(ii).
16
   

, 601-02 (1986).




                                    10
“extremely remote and speculative possibility [] that the
jackpot might never be won,” it nonetheless concluded that
the anticipated liability was “fixed” under Nevada law, which
“forbade reducing the indicated payoff without paying the
jackpot.”17

        One year later, in United States v. General Dynamics
Corp., the Court disallowed deductions claimed by a
commercial taxpayer on the basis of its obligation to
reimburse employees for medical expenses incurred by year’s
end, but not yet submitted for reimbursement on an official
claim form.18 The Court reasoned that because the taxpayer
was “liable to pay for covered medical services only if
properly documented claims forms were filed,” “[t]he filing
of the claim [was] thus a true condition precedent to liability
on the part of the taxpayer.”19 Though decided one year
earlier, Hughes Properties expressly survives General
Dynamics. Whereas the casino operator in Hughes Properties
“could not escape” its “fixed liability for the jackpot . . . as a
matter of state law,”20 the General Dynamics Court
emphasized that employees’ “[m]ere receipt of services . . .
does not, in our judgment, constitute the last link in the chain
of events creating [employer] liability.”21

17
   

18
   

, 243-45 (1987).
19
   

& n.5 (“[A] taxpayer may not deduct a liability that is
contingent or contested. Nor may a taxpayer deduct an estimate of an
anticipated expense, no matter how statistically certain, if it is based on
events that have not occurred by the close of the taxable year.” (internal
citations omitted)).

.
21
   Gen. 

; but see 

(O’Connor, J.,
dissenting) (“In my view, the circumstances of this case differ little from
those in Hughes Properties.”)




                                   11
         Two of our sister circuit courts of appeals have
helpfully construed these ostensibly discordant decisions.
Most recently, in Massachusetts Mutual Life Insurance Co. v.
United States, the Federal Circuit Court of Appeals held that a
life insurance company was entitled to claim deductions on
the basis of future policyholder dividends, guaranteed by the
company’s board of directors.22 The court explained that
under Hughes Properties, the dividends constituted a fixed
liability as of the board’s adoption of resolutions guaranteeing
their payment, despite ensuing uncertainty as to which
policyholders were entitled to the payments and the amount
each policyholder would receive.23 In the court’s view,
General Dynamics did not disturb Hughes Properties’
holding that a liability may be fixed in fact without being
fixed as to the amount or date of payment; instead, the later
decision merely precluded characterization of anticipated
liabilities as “fixed” if “subject to some event that must occur
for a liability to become due.”24 Because boardroom
resolutions conclusively established the fact of the life
insurance provider’s liability for future dividends, the court
held that the anticipated liabilities were not subject to a
condition precedent and therefore qualified as deductible
expenses under the “all events” test.25

22
   

, 1364-65 (Fed. Cir. 2015).
23
   See 

(“[N]ot knowing the ultimate recipient of the payment
does not prevent a liability from becoming fixed.” (citing, inter alia,
Hughes 

)).
24
   

).
25
  See 

, 1371. The Federal Circuit distinguished a
recent Second Circuit decision, N.Y. Life Ins. Co. v. United
States, 

(2d Cir. 2013), disallowing policyholder
dividend deductions on the ground that in that case payment




                                  12
        The Ninth Circuit Court of Appeals also ruled on the
issue of the “all events” test in Gold Coast Hotel & Casino v.
United States.26          Relying on Hughes Properties’
acknowledgment of an “extremely remote and speculative
possibility” that the deductible anticipated liability would
never be paid, the court announced that, “for purposes of the
‘all events’ test, what is critical is the existence of an absolute
liability, not an absolute certainty the liability will be
discharged by payment.”27 Thus, the court allowed a casino
to deduct the value of its gamblers’ accumulated but as-yet-
unredeemed “slot club” rewards points, despite the high
likelihood that some of the points accounted for as deductions
would never be redeemed.28 Unlike the filing of a claim
form, gamblers’ demand for payment was considered a mere
technicality which did not involve third parties or require
“proof of their right to payment,” and therefore did not
constitute “a condition precedent to fixing Gold Coast’s
liability for the value of accumulated slot club points.”29

       Our sister courts’ approaches are consistent with our
only reported decision on the subject. In Lukens Steel Co. v.

of the dividends was subject to various conditions precedent. See Mass.

. Unlike the ironclad payment guarantees
resolved by the life insurance provider’s board of directors in
Massachusetts Mutual, 

, the annual dividends credited to
policyholders’ accounts in New York Life would not be paid out until the
policies’ anniversary date, and only then if policyholders remained
current on all premium 

, 263-64.
26
   

(9th Cir. 1998).
27
   

28
   See 

(“[T]he data in the record suggests that only 69% of
slot club points are actually redeemed.”).
29
   See 

(distinguishing Gen. 

).




                                   13
Commissioner, a case that predated codification of the “all
events” test, we held that an accrual method taxpayer was
entitled to deduct payments credited to a “contingent liability
account,” even though they “would not be paid out
immediately or at a specified time.”30 Critically, however,
under the terms of a collective bargaining agreement, “[i]t
was not possible for Lukens to cancel the contingent liability
account without paying” the credited amounts.31 Because the
taxpayer irrevocably committed to the payments during the
tax year at issue, it was entitled to deduct corresponding
future liabilities that “would be paid in a reasonable period of
time.”32

                                    B.

       As in Lukens Steel, here we determine whether the
taxpayer’s anticipated liability was fixed at year’s end with
reference to contract law principles.33 Specifically, Giant

30
   

, 1134-35 (3d Cir. 1971) (“In similar situations it has
been held that indeterminancy as to the time or amount of payment does
not destroy the deductibility of an accrued item when the amount of
liability is absolutely fixed.” (citations omitted)).
31
   

32
   

accord Wash. Post Co. v. United States, 

,
1284 (Ct. Cl. 1969) (“[W]hen a group liability is involved, it is the
certainty of the liability which is of the utmost importance in the all
events test, and not necessarily either the certainty of the time over which
payment will be made or the identity of the payees.” (internal quotation
marks omitted)).
33
    Accord Rev. Rul. 98-39, 1998-2 C.B. 198 (“Where a taxpayer’s
obligations are set forth in a written agreement, the terms of the
agreement are relevant in determining the events that fix the taxpayer’s
obligation to pay.”). To be sure, noncontractual obligations such as those
contained in a statute or regulation may serve an analogous function, see
Hughes 

(Nevada Gaming Commission




                                    14
Eagle characterizes its issuance of fuelperks! rewards as a
unilateral contract formed at checkout, which conferred
instant liability on the supermarket chain to its customers for
the rewards they accrued.

       Unlike bilateral contracts, which are premised on
reciprocal promises, “unilateral contracts . . . involve only one
promise and are formed when one party makes a promise in
exchange for the other party’s act or performance.
Significantly, a unilateral contract is not formed and is, thus,
unenforceable until such time as the offeree completes
performance.”34 A unilateral contract also differs from an
unenforceable contingent gift in that a reasonable person
would understand that she could accept the offer and reap the
promised reward simply by performing the task specified.35
Thus, a Pennsylvania court held that a car dealership,
advertising a discount on a future car purchase if a hole-in-
one was made on the ninth hole of a local golf course, was
obligated to honor its “offer” when a golfer finally aced the
hole—despite the dealership’s stated intention to end the
promotion two days earlier.36 The court reasoned, “[i]t is the
manifested intent of the offeror and not his subjective intent
which determines the persons having the power to accept the
offer.”37 Because “the offeror’s manifested intent, as it

regulation); Gold Coast 

& n.6 (same), but the “all
events” test does not require that liabilities be fixed by such external
sources.
34
   First Home Sav. Bank, FSB v. Nernberg, 

, 14 (Pa. Super.
Ct. 1994) (internal citations omitted).
35
   See Cobaugh v. Klick-Lewis, Inc., 

, 1249-50 (Pa. Super.
Ct. 1989); see also Pacitti v. Macy’s, 

, 774-75 (3d Cir.
1999).
36
   

.
37
   

(citing Restatement (Second) of Contracts § 29 (1981)).




                                   15
appeared from signs posted at the ninth tee, was that a hole-
in-one would win the car,” the dealer was liable in accordance
with such reasonable expectations.38

      So too might a Giant Eagle customer have reasonably
presumed the redeemability of accumulated fuelperks!
rewards, as provided by the well-publicized “Simple Program
Guide”:




38
     

brochure distributed to Advantage Cardholders also
included fine print providing, inter alia, that “discounted fuel
cannot exceed 30 gallons and discounts must be used in full
on one vehicle in one transaction”; “[t]he promotion is valid
for a limited time and may end at any time without prior
notice”; and “fuelperks! discounts expire 3 months after the
last day of the month in which they’re earned.” But none of
the published program parameters suggested that Giant Eagle
reserved the right to retract rewards that customers had
already accrued. Indeed, in the entire history of Giant Eagle’s
fuel rewards program, “[n]o such retroactive termination ever
occurred, or was even contemplated.”39

       Like the golfer who teed off with a promise of reward
in mind, a customer anticipated the promised fuel discounts
when deciding to shop at Giant Eagle in the first place – and
thus deciding not to shop at a different store. Because she
was then aware that she could apply the discounts as
advertised if she spent fifty dollars on supermarket purchases
using her Advantage Card, she was indeed a party to a
unilateral contract with Giant Eagle. Liability therefore
attached upon her performance, i.e., at checkout.

      For purposes of the “all events” test’s fixed liability
prong, it is irrelevant that neither the total amount of Giant
Eagle’s anticipated liability nor the identity of all the

39
  See Hughes 

(“None of the components that
make up this parade of horribles, of course, took place here.”). Nor
could Giant Eagle have terminated the rewards retroactively “without an
explicit reservation of the power to do so.” Abbott v. Schnader,
Harrison, Segal & Lewis, LLP, 

, 558-60 (Pa. Super. Ct.
2002); see Kemmerer v. ICI Americas Inc., 

, 287 (3d Cir.
1995).




                                  17
customers who eventually applied discounts toward gasoline
purchases could be conclusively identified at year’s end.40
And while there remained an “extremely remote and
speculative possibility” that the amount of Giant Eagle’s
claimed deductions would overstate the value of the rewards
its customers ultimately redeemed,41 Giant Eagle significantly
mitigated that risk by tracking its customers’ monthly
redemption rates and offsetting the deductions accordingly to
account for prospective non-redeemers. Giant Eagle amply
demonstrated the existence—as of year’s end—of both an
absolute liability and a near-certainty that the liability would
soon be discharged by payment. The chance of non-
redemption had been calculated by Giant Eagle “with
reasonable accuracy” as conceded by the Commissioner. The
“all events” test demands no more. We hold, therefore, that
following Hughes Props. and Lukens Steel, Giant Eagle was
entitled to deduct fuelperks!-related liabilities incurred during
the tax years at issue.

                                   III.

       By disallowing deductions claimed on the basis of
established recurring expenses, the Tax Court effectively
obliterated the distinction between two accounting methods
expressly authorized by the Tax Code.42 The extent to which
40
   See Lukens 

(“[I]ndeterminancy as to the . . .
amount of payment does not destroy the deductibility of an accrued item
when the amount of liability is absolutely fixed.”); Mass. 

(“[N]ot knowing the ultimate recipient of the payment does not
prevent a liability from becoming fixed.” (citing, inter alia, Hughes

)).
41
   See Hughes 

.
42
   See 26 U.S.C. § 446(c)(2). The accrual method of accounting differs
fundamentally from its cash counterpart. Whereas businesses that




                                   18
cash and accrual methods of accounting sometimes yield
different deductions is a byproduct of the Tax Code’s design.
So long as a taxpayer consistently adheres to one accounting
method, the Code is agnostic as to the benefit or hardship
wrought by his selection.43

      For the foregoing reasons, we will reverse the Tax
Court’s order sustaining the Commissioner’s deficiency
determinations and remand this case with instructions to grant
judgment in favor of Giant Eagle on the ground that the
claimed deductions are permissible under the “all events” test.
44




choose the latter method refrain from counting revenues until they are
received and expenses until they are paid, those using the accrual method
account for transactions when they occur, regardless of when the money,
goods, or services actually change hands.
43
   See 26 U.S.C. § 446(a), (b) (providing that the Treasury Department
may only recalculate a taxpayer’s liabilities without respect to the
accounting method regularly used in keeping his books if “no method of
accounting has been regularly used by the taxpayer, or if the method
used does not clearly reflect income”).
44
    Because we are reversing on the basis of the Tax Court’s
misapplication of the “all events” test, we express no opinion concerning
the soundness of its alternative holding that the Treasury Regulation
governing “trading stamps” is inapplicable to fuelperks! rewards
accompanying Giant Eagle supermarket purchases. Nor do we discuss
whether the Tax Court accorded Revenue Ruling 78-212 supererogatory
deference. Cf. In re WorldCom, Inc., 

, 357 (2d Cir. 2013);
Kornman & Assocs., Inc. v. United States, 

, 454 & n.9 (5th
Cir. 2008); Aeroquip-Vickers, Inc. v. Comm’r, 

, 181 (6th
Cir. 2003); Omohundro v. United States, 

, 1067-68 (9th
Cir. 2002); Del Commercial Props., Inc. v. Comm’r, 

, 214
(D.C. Cir. 2001).




                                   19
Giant Eagle, Inc. v. Commissioner of Internal Revenue
No. 14-3961

HARDIMAN, Circuit Judge, dissenting.

        The Court reverses the Tax Court’s order after finding
that, at the close of the 2006 and 2007 taxable years for which
Giant Eagle deducted anticipated fuelperks! expenses, “all
events ha[d] occurred which determine[d] the fact” that it was
liable to pay those expenses. 26 U.S.C. § 461(h)(4). Because I
believe Giant Eagle’s liabilities were not determined until
fuelperks! were redeemed, I respectfully dissent.

                                 I

        The law applicable to this case is relatively clear. An
accrual method taxpayer need not ascertain the amount of a
liability,1 to whom it is owed,2 or when it will be paid3 in
order for events to “determine the fact” of the liability and
render it deductible. Instead, all that is required is that it
became “fixed and absolute” in the taxable year for which the
deduction is sought.4 United States v. Hughes Props., Inc.,

, 600 (1986) (quotation omitted); see also, e.g.,
Gold Coast Hotel & Casino v. United States, 

,
489 (9th Cir. 1998) (“[F]or purposes of the ‘all events’ test,
what is critical is the existence of an absolute liability . . . .”
(emphasis removed)).

       Several cases explain what it means for a liability to be
fixed and absolute. In United States v. Hughes Properties,
Inc., a casino established the fact of its liability to make an
additional slot machine payout by raising its progressive

       1
         26 U.S.C. § 461(h)(4) (amount need only be
“determined with reasonable accuracy”).
       2
         E.g., United States v. Hughes Props., Inc., 

, 602 (1986).
       3
         E.g., 

       4
          Where a liability is fixed and absolute, neither a
potential inability of the taxpayer to pay it (due to going out
of business, loss of license, or bankruptcy) nor “an extremely
remote and speculative possibility” that the liability will
never come due negates that the liability is determined in fact.
See Hughes 

–02, 605–06.
                                1
jackpot under a Nevada law that prescribed “a fixed liability
for the jackpot which it could not 

. In
Massachusetts Mutual Life Insurance Co. v. United States, an
insurance company determined the fact of its liability to make
dividend payments to a class of policyholders after the board
of directors “passed an absolute resolution to pay the
guaranteed dividend and . . . at least some policyholders were
already qualified recipients of that guarantee.” 

,
1365 (Fed. Cir. 2015). And in Lukens Steel Co. v.
Commissioner of Internal Revenue, a steel company
established the fact of its liability to transfer funds from a
contingent liability account to its employees by paying into
the account under a collective bargaining agreement that
obligated funds “to be used to pay benefits to [the company’s]
eligible employees” and specified that “[i]n no event could
the [account] be cancelled by” the company. 

,
1134–35 (3d Cir. 1971). In each of these cases, events took
place under a set of rules—imposed by law or contract—that
established that the taxpayer was liable and would remain
liable until payment was made.

       In an effort to identify rules that established Giant
Eagle’s liability, the Majority turns to Pennsylvania’s
common law of contracts and the terms and conditions of the
fuelperks! program. Specifically, it applies the Pennsylvania
Superior Court’s decision in Cobaugh v. Klick-Lewis, Inc. to
show that Giant Eagle entered into a unilateral contract with
each shopper at checkout, thereby incurring liability to
provide discounted gas at that time. 

(Pa.
Super. Ct. 1989). The Majority notes that accrued fuelperks!
were not expressly permitted to be, and never have been,
retracted by Giant Eagle. Based on these observations, the
Majority concludes that “Giant Eagle amply demonstrated the
existence—as of year’s end—of both an absolute liability and
a near-certainty that the liability would soon be discharged by
payment.” Maj. Typescript at 16. While I agree with the
Majority’s observations, I disagree with its conclusions.

       We have elsewhere applied Cobaugh for the
proposition that an advertisement promising an opportunity to
earn a benefit in exchange for performance can give rise to a
unilateral contract. Pacitti v. Macy’s, 

, 772–73
(3d Cir. 1999) (applying Cobaugh to an offer for “the

                              2
opportunity of becoming ‘Broadway’s New “Annie”’”).
Accordingly, I am constrained by precedent to agree with my
colleagues that, under Cobaugh, Giant Eagle’s advertisements
constituted an offer to its shoppers to enter into a unilateral
contract for the opportunity to redeem fuelperks! for
discounted gas by purchasing $50 or more in groceries. See
Hughes 

–02 (applying state law to
determine whether a casino’s liability was fixed). Qualifying
purchases met the complete performance requirement and
“[l]iability therefore attached upon . . . performance, i.e., at
checkout.” Maj. Typescript at 15.

        Nonetheless, the liabilities that accrued to Giant Eagle
on account of its fuelperks! program were not absolute. The
casino in Hughes Properties, the insurance company in
Massachusetts Mutual, and the steel company in Lukens Steel
all operated under a set of rules that offered no hope of escape
from their fixed liabilities. In each case, those liabilities had
to remain on their books until discharged by payment. Here,
in contrast, Giant Eagle made each liability temporary by
providing that “fuelperks! discounts expire 3 months after the
last day of the month in which they’re earned.” App. 1161. If
a shopper failed to redeem fuelperks! within that timeframe,
the discounts were lost and Giant Eagle had no obligation to
honor a belated attempt at redemption. After acknowledging
this fact, the Majority offers reasons why we should
nonetheless conclude that Giant Eagle faced “an absolute
liability.” Maj. Typescript at 16. After careful consideration
of those reasons, I remain unconvinced.

       First, the Majority emphasizes that “none of the
published program parameters suggested that Giant Eagle
reserved the right to retract rewards that customers had
already accrued” and “[n]o such retroactive termination ever
occurred, or was even contemplated.” 

(quotation
omitted). While these statements are undoubtedly true, they
do not change the fact that the company’s liabilities were
extinguishable by another means. Like retraction, expiration
has the effect of eliminating liability for the benefit of Giant
Eagle.

       Second, the Majority notes that “it is irrelevant that
neither the total amount of Giant Eagle’s anticipated liability

                               3
nor the identity of all the customers who eventually applied
discounts toward gasoline purchases could be conclusively
identified by year’s end.” 

(emphasis removed). In
my view, this comment reveals an analytical error, i.e., a
conversion of Giant Eagle’s individual liabilities into a group
liability. In order to establish that Giant Eagle faced a fixed
liability, the Majority applies Cobaugh to conclude that the
company entered into a unilateral contract at checkout with—
and therefore became liable to provide discounted gas to—
each shopper. Consequently, its liabilities were several and
fixed on an individual basis. But the Majority later departs
from that reality by treating the company’s numerous
individual liabilities as an amalgamation. See Maj. Typescript
at 15 (citing Lukens Steel and Massachusetts Mutual, cases
that each involved a single group liability); see also 

(“Giant Eagle amply demonstrated the existence—as of
year’s end—of . . . an absolute liability” (emphasis added)).
This errant tack is critical because whether liability is fixed
on an individual or collective basis is a “significant” fact with
the potential to “dictate . . . different outcome[s]” in our
cases. Mass. 

. Accordingly, I cannot
agree with the Majority’s analysis, which perceives Giant
Eagle’s liability as being fixed both on an individual and
collective basis.

        As I see it, the question for our resolution is whether
Giant Eagle’s liability to any individual shopper with
accrued-but-not-yet-redeemed fuelperks! was certain to
continue under the rules applicable to that liability until it was
paid. Because one of those rules allowed for the expiration of
each shopper’s fuelperks! (and Giant Eagle’s corresponding
liability to that shopper), the answer is plainly “no.” While
Giant Eagle became liable to a shopper at checkout, it did not
become absolutely liable to that shopper unless and until the
shopper redeemed fuelperks! prior to their expiration. For that
reason, I would hold that, at the close of the 2006 and 2007
taxable years, Giant Eagle faced many fixed liabilities for yet-
to-be-redeemed fuelperks!, but none that were “determine[d]
in fact” because each was contingent upon future redemption
by the shopper.




                                4
                         *      *      *

        Had Giant Eagle not included an expiration provision
in its terms and conditions, I would be inclined to agree with
my colleagues that the company incurred a fixed and absolute
liability to each shopper at checkout. In that case, we would
face the difficult task of determining whether historical
redemption data and other evidence reveal more than “an
extremely remote and speculative possibility” that any given
shopper would fail to timely redeem discounts and how much
bearing, if any, the answer to that question has on whether the
company’s liabilities were “determine[d] in fact.” Hughes

; see Gold Coast Hotel & 

(interpreting Hughes Properties to require at least
a “reasonable expectancy” that the liability will be discharged
by payment of cash or its equivalent). But the fact that the
store did include an expiration provision—thereby
conditioning its liability to each shopper upon fuelperks!
redemption at a Giant Eagle-owned gas station within
approximately 3 months’ time—made “redemption” a
condition precedent to the establishment of an absolute
liability. Because that event had not occurred by the close of
the 2006 or 2007 taxable years with respect to the deductions
Giant Eagle claimed on accrued-but-not-yet-redeemed
fuelperks!, I would hold that the “all events” test was not
satisfied and those anticipated expenses were not deductible.

                                II

        In light of my view regarding Giant Eagle’s failure to
satisfy the “all events” test, I turn to its alternative argument.
Giant Eagle contends that its deductions were the functional
equivalent of offsets to income permissible under a
longstanding exception to the “all events” test. Pursuant to
Treasury Regulation § 1.451–4(a)(1), “[i]f an accrual method
taxpayer issues trading stamps or premium coupons with
sales” that are redeemable “in merchandise, cash, or other
property,” the taxpayer should “subtract from gross receipts”
the estimated cost of redemption of those stamps and coupons
in calculating taxable income.5 While it is undisputed that


       5
          In effect, § 1.451–4(a)(1) allows a taxpayer to reduce
its tax liability by writing off the expected future cost of such
                                5
fuelperks! are “issue[d] . . . with sales” of groceries, the
parties contest the exception’s two other requirements: (1)
whether fuelperks! qualify as “trading stamps or premium
coupons” and (2) whether fuelperks! are redeemable “in
merchandise, cash, or other property.” Because fuelperks! are
not redeemable “in merchandise, cash, or other property,” I
agree with the Tax Court and would hold that § 1.451–4(a)(1)
does not authorize Giant Eagle’s deductions.

        In a 1978 revenue ruling, the IRS interpreted the
phrase “in merchandise, cash, or other property” to imply an
“unconditional” right of redemption, meaning that in order for
a stamp or coupon to fall under § 1.451–4(a)(1) it must be
“redeemable without additional consideration from the
consumer.” Rev. Rul. 78-212, 1978-1 C.B. 139, *2 (1978).
For that reason, the IRS advised a manufacturer that it “may
not avail itself of [§ 1.451–4(a)(1)]” to account for the
redemption of “coupons that entitle consumers to a discount
on the sales price of certain products purchased in the future.”

Such coupons are not redeemable “in merchandise,
cash, or other property” because their redemption is
“conditioned on an additional purchase.” 

       In response to Revenue Ruling 78-212, Congress
added § 466 to the Internal Revenue Code. That section
authorized6 taxpayers to offset revenue with respect to a
limited class of discount coupons—i.e., those which, inter
alia, were redeemable for “a discount on the purchase price of


trading stamp and premium coupon redemption—a result the
“all events” test otherwise precludes with its prohibition of
the deduction of contingent liabilities. See Capital One Fin.
Corp. v. Comm’r, 

, 197 (2009), aff’d sub nom.
Capital One Fin. Corp., & Subsidiaries v. Comm’r, 

(4th Cir. 2011) (referring to § 1.451–4(a)(1) as an
“exception” to the “all events” test and noting that “taxpayers
are entitled to a present deduction for only that portion of the
stamps or coupons that they expect to eventually be
redeemed”).
       6
       Section 466 was repealed 8 years later by the Tax
Reform Act of 1986. Pub. L. No. 99-514, § 823(a), 100 Stat.
2373.
                               6
merchandise or other tangible personal property.” Treas. Reg.
§ 1.466-1(c)(1). In other words, in reconciling (1) its interest
in the ability of companies to offset the cost of certain
discount coupons with (2) the IRS’s interpretation of § 1.451–
4(a)(1) which precluded such offsets, Congress chose not to
broaden the IRS’s interpretation. Instead, Congress passed a
law which independently authorized those offsets and, in
doing so, expressly drew a distinction between redemption in
property (the nature of redemption that falls within the ambit
of § 1.451–4(a)(1)) and redemption of a discount on the
purchase price of property (the nature of redemption
addressed by § 466)—a distinction it has drawn in other areas
as well. See Treas. Reg. § 1.461–4(g)(3) (explaining that a
“rebate, refund, or similar payment” can be paid “in property,
money, or as a reduction in the price of goods or services”
(emphasis added)).

       As advertised, a fuelperks! reward entitled its holder to
“10¢ off every gallon of gas on your next fill-up at GetGo.”
App. 1161. Therefore, the benefits provided by fuelperks!
were discounts on the purchase price of gasoline, not an
entitlement to gasoline itself or the discount’s cash value.
This is true even though fuelperks! could be accumulated and
redeemed en masse for free gas. In those situations, shoppers
did not exchange fuelperks! for gas as such, but rather for a
100% discount on the price of gas—a functional equivalent to
be sure, but reflective of an important distinction respecting
the nature of fuelperks! redeemability. It is this nature of
redeemability—i.e., that fuelperks! can be exchanged only for
discounts—that leads me to conclude that fuelperks! were not
redeemable “in merchandise, cash, or other property.” Giant
Eagle asks us to reject this conclusion for two reasons, neither
of which I find persuasive.

       First, Giant Eagle argues that “discounts against gas”
count as “other property” within the meaning of § 1.451–
4(a)(1) and the IRS’s contrary interpretation was “mistakenly
viewed as persuasive” by the Tax Court. Giant Eagle Br. 60. I
disagree because the notion that the phrase “in merchandise,
cash, or other property” categorically excludes coupons
redeemable for discounts is supported not only by the
persuasive power of the IRS’s ruling, see, e.g., PSB Holdings,
Inc. v. Comm’r, 

, 142 (2007) (applying the

                               7
deferential standard of Skidmore v. Swift & Co., 

, 140 (1944)), but also by the regulation’s text and its
historical context. By enacting § 466, Congress responded to
the IRS’s interpretation of § 1.451–4(a)(1) not by bringing
discount coupons within its ambit, but by giving separate
authorization to companies to offset the cost of coupons
redeemable for “a discount on the purchase price of
merchandise or other tangible property.” In doing so,
Congress hewed to, and placed textual emphasis on, the
distinction the IRS drew: that benefits redeemable “in”
property do not include benefits redeemable for “a discount
on the purchase price of” property.

       Second, Giant Eagle claims that fuelperks! were
designed to (and did) generate grocery revenue—not fuel
revenue—and that setting off the expected cost of fuelperks!
redemption against grocery sales therefore accords with the
purpose of § 1.451–4(a)(1), which is “to match sales revenues
with the expenses incurred in generating those revenues.”
Capital One Fin. Corp. v. Comm’r, 

, 197 (2009).
I have no reason to doubt the company’s representations as to
the purpose of the fuelperks! program or the impact it has had
on revenues. Accordingly, I agree with Giant Eagle that the
Tax Court’s application of § 1.451–4(a)(1) to fuelperks! led
to a result that is at least somewhat incongruent with one of
the regulation’s purposes. But this incongruity is the product
of a faithful application of the requirements of § 1.451–
4(a)(1) to the facts of this case.

                             III

       For the reasons stated, I would hold that the 2006 and
2007 taxable year deductions Giant Eagle claimed on
accrued-but-not-yet-redeemed fuelperks! neither satisfied the
“all events” test nor qualified as offsets to income under
§ 1.451–4(a)(1). Accordingly, I respectfully dissent.




                              8