Gold Coast Hotel & Casino v. United States

158 F.3d 484 (9th Cir. 1998)

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Nature of the Case

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Facts

P is a Nevada limited partnership formed in 1985 for the purpose of operating a licensed gambling casino. P has operated a slot club since March 1987. Slot club members receive a club card and a computer tracks their accumulation of slot club points. Those points can be redeemed for prizes ranging from coffee mugs to Hawaiian vacations. The minimum number of points needed to redeem a prize is 1,200. The market value of each club point is $ 0.0021. Accordingly, 100,000 points have a value of $210. At the end of 1988, the difference between the total value of slot club points that had been accumulated by club members and the total value of slot club points that had been redeemed by club members was $1,276,464. In 1989 members accumulated additional slot club points valued at $2,445,780 and redeemed points valued at $1,724,801. At the end of 1989, there were outstanding slot club points valued at $1,997,443, an increase of $720,979 over the prior year's ending balance. Pt deducted that amount as an expense on its 1989 partnership tax return. P also recaptured $105,969, representing the value of accumulated slot club points in those accounts in which there had been no activity for over a year, and which had been deducted as an expense in the prior year. At the end of 1990, the value of outstanding slot club points increased by $690,693. P deducted this amount as an expense on its 1990 partnership tax return. That same year P recaptured as income $68,910, representing the value of accumulated slot club points in those accounts in which there had been no activity for over a year, and which had been deducted as an expense in the prior year. This sent D into a fit for which D accessed all the deductions in unused slot club points as income. P sued D for a refund. The court held that P had properly deducted the value of those slot club points that had been accumulated by members with more than 1,200 points in their slot club account. The district court disallowed deductions of the value of slot club points attributable to members who had not yet earned 1,200 points. D appealed.