U.S. Supreme Court CIR v. Groetzinger, 480 U.S.
23 (1987) Commissioner of Internal Revenue v.
Groetzinger No. 86-1226 Argued Dec. 8, 1986 Decided Feb. 24, 1987 480 U.S.
23 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SEVENTH CIRCUIT Syllabus For most of 1978, respondent devoted 60 to 80 hours per week to
parimutuel wagering on dog races with a view to earning a living
from such activity, had no other employment, and gambled solely for
his own account. His efforts generated gross winnings of $70,000 on
bets of $72,032, for a net gambling loss for the year of $2,032.
Although he reported this loss on his 1978 tax return, he did not
utilize it in computing his adjusted gross income or claim it as a
deduction. Upon audit, the Commissioner of Internal Revenue
determined that, under the Internal Revenue Code of 1964 (Code) as
it existed in 1978, respondent was subject to a minimum tax because
part of the gambling loss deduction to which he was entitled was an
"ite[m] of tax preference." Under the Code, such items could be
lessened by certain deductions that were "attributable to a trade
or business carried on by the taxpayer." In redetermining
respondent's tax deficiency, the Tax Court held that he was in the
"trade or business" of gambling, so that no part of his gambling
losses was an item of tax preference subjecting him to a minimum
tax for 1978. The Court of Appeals affirmed. Held: A full-time gambler who makes wagers solely for
his own account is engaged in a "trade or business" within the
meaning of Code §§162(a) and 62(1). Pp. 480 U. S.
27 -36.

															771 F.2d 269, affirmed.

															BLACKMUN, J., delivered the opinion of the Court, in which
BRENNAN, MARSHALL, POWELL, STEVENS, and O'CONNOR, JJ., joined.
WHITE, J., filed a dissenting opinion, in which REHNQUIST, C. J.,
and SCALIA, J., joined, post, p. 480 U. S.
37 . Page 480 U. S. 24 JUSTICE BLACKMUN delivered the opinion of the Court.

															The issue in this case is whether a full-time gambler who makes
wagers solely for his own account is engaged in a "trade or
business," within the meaning of §§162(a) and 62(1) of the Internal
Revenue Code of 1954, as amended, 26 U.S.C. §§162(a) and
62(1) (1976 ed. and Supp. V). [ Footnote 1 ] The tax year with which we here are concerned
is the calendar year 1978; technically, then, we look to the Code
as it read at that time. I There is no dispute as to the facts. The critical ones are
stipulated. See App. 9. Respondent Robert P. Groetzinger
had worked for 20 years in sales and market research for an
Illinois manufacturer when his position was terminated in February,
1978. During the remainder of that year, respondent busied himself
with parimutuel wagering, primarily on greyhound races. He gambled
at tracks in Florida and Colorado. He went to the track 6 days a
week for 48 weeks in 1978. He spent a substantial amount of time
studying racing forms, programs, and other materials. He devoted
from 60 to 80 hours each week to these gambling-related endeavors.
He never placed bets on behalf of any other person, or sold tips,
or collected commissions for placing bets, or functioned as a
bookmaker. He gambled solely for his own account. He had no other
profession or type of employment. [ Footnote 2 ] Page 480 U. S. 25 Respondent kept a detailed accounting of his wagers, and every
day noted his winnings and losses in a record book. In 1978, he had
gross winnings of $70,000, but he bet $72,032; he thus realized a
net gambling loss for the year of $2,032.

															Respondent received $6,498 in income from other sources in 1978.
This came from interest, dividends, capital gains, and salary
earned before his job was terminated.

															On the federal income tax return he filed for the calendar year
1978, respondent reported as income only the $6,498 realized from
nongambling sources. He did not report any gambling winnings or
deduct any gambling losses. [ Footnote 3 ] He did not itemize deductions. Instead, he
computed his tax liability from the tax tables.

															Upon audit, the Commissioner of Internal Revenue determined that
respondent's $70,000 in gambling winnings were to be included in
his gross income, and that, pursuant to §165(d) of the Code, 26
U.S.C. §165(d), a deduction was to be allowed for his gambling
losses to the extent of these gambling gains. But the Commissioner
further determined that, under the law as it was in 1978, a portion
of respondent's $70,000 gambling-loss deduction was an item of tax
preference and operated to subject him to the minimum tax under
§56(a) of the Code, 26 U.S.C. §56(a) (1976 ed.). At that time,
under statutory provisions in effect from 1976 until 1982, "items
of tax preference" were lessened by certain deductions, but not by
deductions not "attributable to a trade or business carried on by
the taxpayer." §§57(a)(1) and (b)(1)(A), and §62(1), 26 U.S.C.
§§57(a)(1) and (b)(1)(A), and §62(1) (1976 ed. and Supp. I).
[ Footnote 4 ] Page 480 U. S. 26 These determinations by the Commissioner produced a § 56(a)
minimum tax of $2,142 and, with certain other adjustments not now
in dispute, resulted in a total asserted tax deficiency of $2,522
for respondent for 1978.

															Respondent sought redetermination of the deficiency in the
United States Tax Court. That court, in a reviewed decision, with
only two judges dissenting, held that respondent was in the trade
or business of gambling, and that, as a consequence, no part of his
gambling losses constituted an item of tax preference in
determining any minimum tax for 1978. 82 T.C. 793 (1984). In so
ruling, the court adhered to its earlier court-reviewed decision in Ditunno v. Commissioner, 80 T.C. 362 (1983). The court in Ditunno, id. at 371, had overruled Gentile v.
Commissioner, 65 T.C. 1 (1975), a case where it had rejected
the Commissioner's contention (contrary to his position here) that
a full-time gambler was in a trade or business, and therefore was
subject to self-employment tax.

															The United States Court of Appeals for the Seventh Circuit
affirmed. 771 F.2d 269 (1985). Because of a conflict on the issue
among Courts of Appeals, [ Footnote
5 ] we granted certiorari. 475 U.S. 1080 (1986). Page 480 U. S. 27 II The phrase "trade or business" has been in §162(a) and in that
section's predecessors for many years. Indeed, the phrase is common
in the Code, for it appears in over 50 sections and 800 subsections
and in hundreds of places in proposed and final income tax
regulations. The slightly longer phrases, "carrying on a trade or
business" and "engaging in a trade or business," themselves are
used no less than 60 times in the Code. The concept thus has a
well-known and almost constant presence on our tax-law terrain.
Despite this, the Code has never contained a definition of the
words "trade or business" for general application, and no
regulation has been issued expounding its meaning for all purposes.
[ Footnote 6 ] Neither has a
broadly applicable authoritative judicial definition emerged.
[ Footnote 7 ] Our task in this
case is to ascertain the meaning of the phrase as it appears in the
sections of the Code with which we are here concerned. [ Footnote 8 ]

															In one of its early tax cases, Flint v. Stone Tracy
Co., 220 U. S. 107 (1911), the Court was concerned with the Corporation Tax imposed by
§ 38 of the Tariff Act of 1909, ch. 6, 36 Stat. 112-117, and the
status of being engaged in business. It said: " Business' is a
very comprehensive term Page 480 U. S.
28 and embraces everything about which a person can be
employed." 220 U.S. at 220 U. S. 171 .
It embraced the Bouvier Dictionary definition: "That which occupies
the time, attention and labor of men for the purpose of a
livelihood or profit." Ibid. See also Helvering v. Horst, 311 U. S. 112 , 311 U. S. 118 (1940). And Justice Frankfurter has observed that "we assume that
Congress uses common words in their popular meaning, as used in the
common speech of men." Frankfurter, Some Reflections on the Reading
of Statutes, 47 Colum.L.Rev. 527, 536 (1947). With these general comments as significant background, we turn
to pertinent cases decided here. Snyder v. Commissioner, 295 U. S. 134 (1935), had to do with margin trading and capital gains, and held,
in that context, that an investor, seeking merely to increase his
holdings, was not engaged in a trade or business. Justice Brandeis,
in his opinion for the Court, noted that the Board of Tax Appeals
theretofore had ruled that a taxpayer who devoted the major portion
of his time to transactions on the stock exchange for the purpose
of making a livelihood could treat losses incurred as having been
sustained in the course of a trade or business. He went on to
observe that no facts were adduced in Snyder to show that
the taxpayer "might properly be characterized as a trader on an
exchange who makes a living in buying and selling securities.'" Id. at 295 U. S. 139 .
These observations, thus, are dicta, but, by their use, the Court
appears to have drawn a distinction between an active trader and an
investor. In Deputy v. Du Pont, 308 U. S. 488 (1940), the Court was concerned with what were "ordinary and
necessary" expenses of a taxpayer's trade or business, within the
meaning of §23(a) of the Revenue Act of 1928, 45 Stat. 799. In
ascertaining whether carrying charges on short sales of stock were
deductible as ordinary and necessary expenses of the taxpayer's
business, the Court assumed that the activities of the
taxpayer in conserving and enhancing his estate constituted a trade
or business, but nevertheless disallowed the Page 480 U. S. 29 claimed deductions because they were not "ordinary" or
"necessary." 308 U.S. at 308 U. S.
493 -497. Justice Frankfurter, in a concurring opinion
joined by Justice Reed, did not join the majority. He took the
position that whether the taxpayer's activities constituted a trade
or business was "open for determination," id. at 308 U. S. 499 ,
and observed:

															". . . 'carrying on any trade or business,' within the
contemplation of §23(a), involves holding one's self out to others
as engaged in the selling of goods or services. This the taxpayer
did not do. . . . Without elaborating the reasons for this
construction, and not unmindful of opposing considerations,
including appropriate regard for administrative practice, I prefer
to make the conclusion explicit instead of making the hypothetical
litigation-breeding assumption that this taxpayer's activities, for
which expenses were sought to be deducted, did constitute a 'trade
or business.'" Ibid. Next came Higgins v. Commissioner, 312 U.
S. 212 (1941). There the Court, in a bare and brief
unanimous opinion, ruled that salaries and other expenses incident
to looking after one's own investments in bonds and stocks were not
deductible under § 23(a) of the Revenue Act of 1932, 47 Stat. 179,
as expenses paid or incurred in carrying on a trade or business.
While surely cutting back on Flint's broad approach, the
Court seemed to do little more than announce that, since 1918, "the
present form [of the statute] was fixed and has so continued"; that
"[n]o regulation has ever been promulgated which interprets the
meaning of carrying on a business'"; that the comprehensive
definition of "business" in Flint was "not controlling in
this dissimilar inquiry"; that the facts in each case must be
examined; that not all expenses of every business transaction are
deductible; and that "[n]o matter how large the estate or how continuous or extended
the work required may be, such facts are not sufficient as a matter
of law to permit the courts to reverse the decision of the
Board."

															312 U.S. at 312 U. S.
215 -218. The opinion, therefore -- although devoid Page 480 U. S. 30 of analysis and not setting forth what elements, if any, in
addition to profit motive and regularity, were required to render
an activity a trade or business -- must stand for the propositions
that full-time market activity in managing and preserving one's own
estate is not embraced within the phrase "carrying on a business,"
and that salaries and other expenses incident to the operation are
not deductible as having been paid or incurred in a trade or
business. [ Footnote 9 ] See
also United States v. Gilmore, 372 U. S.
39 , 372 U. S. 44 -45
(1963); Whipple v. Commissioner, 373 U.
S. 193 (1963). It is of interest to note that, although
Justice Frankfurter was on the Higgins Court and this time
did not write separately, and although Justice Reed, who had joined
the concurring opinion in Du Pont, was the author of the Higgins opinion, the Court in that case did not even cite Du Pont, and thus paid no heed whatsoever to the content
of Justice Frankfurter's pronouncement in his concurring opinion.
[ Footnote 10 ] Adoption of
the Frankfurter gloss obviously would have disposed of the case in
the Commissioner's favor handily and automatically, but that easy
route was not followed.

															Less than three months later, the Court considered the issue of
the deductibility, as business expenses, of estate and trust fees.
In unanimous opinions issued the same day and written by Justice
Black, the Court ruled that the efforts Page 480 U. S. 31 of an estate or trust in asset conservation and maintenance did
not constitute a trade or business. City Bank Farmers Trust Co.
v. Helvering, 313 U. S. 121 (1941); United States v. Pyne, 313 U.
S. 127 (1941). The Higgins case was deemed to
be relevant and controlling. Again, no mention was made of the
Frankfurter concurrence in Du Pont. Yet Justices Reed and
Frankfurter were on the Court. Snow v. Commissioner, 416 U. S. 500 (1974), concerned a taxpayer who had advanced capital to a
partnership formed to develop an invention. On audit of his 1966
return, a claimed deduction under §174(a)(1) of the 1954 Code for
his pro rata share of the partnership's operating loss was
disallowed. The Tax Court and the Sixth Circuit upheld that
disallowance. This Court reversed. Justice Douglas, writing for the
eight Justices who participated, observed:

															"Section 174 was enacted in 1954 to dilute some of the
conception of 'ordinary and necessary' business expenses under
§162(a) (then § 23(a)(1) of the Internal Revenue Code of 1939)
adumbrated by Mr. Justice Frankfurter in a concurring opinion in Deputy v. Du Pont . . . where he said that the section in
question . . . 'involves holding one's self out to others as
engaged in the selling of goods or services.'"

															416 U.S. at 416 U. S.
502 -503. He went on to state, id. at 416 U. S. 503 ,
that §162(a) "is more narrowly written than is §174.

															From these observations and decisions, we conclude (1) that, to
be sure, the statutory words are broad and comprehensive
( Flint ); (2) that, however, expenses incident to caring
for one's own investments, even though that endeavor is full time,
are not deductible as paid or incurred in carrying on a trade or
business ( Higgins; City Bank; Pyne ); (3) that the opposite
conclusion may follow for an active trader (Snyder); (4) that
Justice Frankfurter's attempted gloss upon the decision in Du Pont
was not adopted by the Court in that case; (5) that the Court,
indeed, later characterized it as an "adumbration" (Snow); and (6)
that the Frankfurter observation, specifically or by implication,
never has been accepted Page 480 U. S. 32 as law by a majority opinion of the Court, and more than once
has been totally ignored. We must regard the Frankfurter gloss
merely as a two-Justice pronouncement in a passing moment and,
while entitled to respect, as never having achieved the status of a
Court ruling. One also must acknowledge that Higgins, with
its stress on examining the facts in each case, affords no readily
helpful standard, in the usual sense, with which to decide the
present case and others similar to it. The Court's cases, thus,
give us results, but little general guidance. III Federal and state legislation and court decisions, perhaps
understandably, until recently have not been noticeably favorable
to gambling endeavors, and even have been reluctant to treat
gambling on a parity with more "legitimate" means of making a
living. See, e.g., §4401 et seq. of the Code; Marchetti v. United States, 390 U. S.
39 , 390 U. S. 44 -46,
and nn. 5 and 6 (1968). [ Footnote 11 ] And the confinement of gambling-loss
deductions to the amount of gambling gains, a provision brought
into the income tax law as § 23(g) of the Revenue Act of 1934, 48
Stat. 689, and carried forward into §165(d) of the 1954 Code,
closed the door on suspected abuses, see H.R.Rep. No. 704,
73d Cong., 2d Sess., 22 (1934); S.Rep. No. 558, 73d Cong., 2d
Sess., 25 (1934), but served partially to differentiate genuine
gambling losses from many other types of adverse financial
consequences sustained during the tax year. Gambling winnings,
however, have not been isolated from gambling losses. The Congress
has been realistic enough to recognize that such losses do exist
and do have some effect on income, which is the primary focus of
the federal income tax.

															The issue this case presents has "been around" for a long time
and, as indicated above, has not met with consistent treatment in
the Tax Court itself or in the Federal Courts of Page 480 U. S. 33 Appeals. The Seventh Circuit, in the present case, said the
issue "has proven to be most difficult and troublesome over the
years." 771 F.2d at 271. The difficulty has not been ameliorated by
the persistent absence of an all-purpose definition, by statute or
regulation, of the phrase "trade or business" which so frequently
appears in the Code. Of course, this very frequency well may be the
explanation for legislative and administrative reluctance to take a
position as to one use that might affect, with confusion, so many
others.

															Be that as it may, this taxpayer's case must be decided and,
from what we have outlined above, must be decided in the face of a
decisional history that is not positive or even fairly indicative,
as we read the cases, of what the result should be. There are,
however, some helpful indicators.

															If a taxpayer, as Groetzinger is stipulated to have done in
1978, devotes his full-time activity to gambling, and it is his
intended livelihood source, it would seem that basic concepts of
fairness (if there be much of that in the income tax law) demand
that his activity be regarded as a trade or business just as any
other readily accepted activity, such as being a retail store
proprietor or, to come closer categorically, as being a casino
operator or as being an active trader on the exchanges.

															It is argued, however, that a full-time gambler is not offering
goods or his services, within the line of demarcation that Justice
Frankfurter would have drawn in Du Pont. Respondent
replies that he indeed is supplying goods and services, not only to
himself but, as well, to the gambling market; thus, he says, he
comes within the Frankfurter test even if that were to be imposed
as the proper measure. "It takes two to gamble." Brief for
Respondent 3. Surely, one who clearly satisfies the Frankfurter
adumbration usually is in a trade or business. But does it
necessarily follow that one who does not satisfy the Frankfurter
adumbration is not in a trade or business? One might well feel that
a full-time gambler Page 480 U. S. 34 ought to qualify as much as a full-time trader, [ Footnote 12 ] as Justice Brandeis in Snyder implied and as courts have held. [ Footnote 13 ] The Commissioner, indeed,
accepts the trader result. Tr. of Oral Arg. 17. In any event, while
the offering of goods and services usually would qualify the
activity as a trade or business, this factor, it seems to us, is
not an absolute prerequisite.

															We are not satisfied that the Frankfurter gloss would add any
helpful dimension to the resolution of cases such as this one, or
that it provides a "sensible test," as the Commissioner urges. See Brief for Petitioner 36. It might assist now and then,
when the answer is obvious and positive, but it surely is capable
of breeding litigation over the meaning of "goods," the meaning of
"services," or the meaning of "holding one's self out." And we
suspect that -- apart from gambling -- almost every activity would
satisfy the gloss. [ Footnote
14 ] A test that everyone passes is not a test at all. We
therefore now formally reject the Frankfurter gloss, which the
Court has never adopted anyway. Page 480 U. S. 35 Of course, not every income-producing and profit-making endeavor
constitutes a trade or business. The income tax law, almost from
the beginning, has distinguished between a business or trade, on
the one hand, and "transactions entered into for profit but not
connected with . . . business or trade," on the other. See Revenue Act of 1916, §5(a), Fifth, 39 Stat. 759. Congress

															"distinguished the broad range of income or profit producing
activities from those satisfying the narrow category of trade or
business." Whipple v. Commissioner, 373 U.S. at 373 U. S. 197 .
We accept the fact that, to be engaged in a trade or business, the
taxpayer must be involved in the activity with continuity and
regularity, and that the taxpayer's primary purpose for engaging in
the activity must be for income or profit. A sporadic activity, a
hobby, or an amusement diversion does not qualify.

															It is suggested that we should defer to the position taken by
the Commissioner and by the Solicitor General, but, in the absence
of guidance, for over several decades now, through the medium of
definitive statutes or regulations, we see little reason to do so.
We would defer, instead, to the Code's normal focus on what we
regard as a common-sense concept of what is a trade or business.
Otherwise, as here, in the context of a minimum tax, it is not too
extreme to say that the taxpayer is being taxed on his gambling
losses, [ Footnote 15 ] a
result distinctly out of line with the Code's focus on income.

															We do not overrule or cut back on the Court's holding in Higgins when we conclude that, if one's gambling activity
is pursued full-time, in good faith, and with regularity, to the
production of income for a livelihood, and is not a mere hobby, it
is a trade or business within the meaning of the statutes with
which we are here concerned. Respondent Page 480 U. S. 36 Groetzinger satisfied that test in 1978. Constant and
large-scale effort on his part was made. Skill was required and was
applied. He did what he did for a livelihood, though with a
less-than-successful result. This was not a hobby or a passing
fancy or an occasional bet for amusement.

															We therefore adhere to the general position of the Higgins Court, taken 46 years ago, that resolution of this
issue "requires an examination of the facts in each case." 312 U.S.
at 312 U. S. 217 .
This may be thought by some to be a less-than-satisfactory
solution, for facts vary. See Boyle, What is a Trade or
Business?, 39 Tax Lawyer 737, 767 (1986); Note, The Business of
Betting: Proposals for Reforming the Taxation of Business Gamblers,
38 Tax Lawyer 759 (1985); Lopez, Defining "Trade or Business" Under
the Internal Revenue Code: A Survey of Relevant Cases, 11
Fla.St.U.L.Rev. 949 (1984). Cf. Comment, Continuing
Vitality of the "Goods or Services" Test, 15 U.Balt.L.Rev. 108
(1985). But the difficulty rests in the Code's wide utilization in
various contexts of the term "trade or business," in the absence of
an all-purpose definition by statute or regulation, and in our
concern that an attempt judicially to formulate and impose a test
for all situations would be counterproductive, unhelpful, and even
somewhat precarious for the overall integrity of the Code. We leave
repair or revision, if any be needed, which we doubt, to the
Congress, where we feel, at this late date, the ultimate
responsibility rests. Cf. Flood v. Kuhn, 407 U.
S. 258 , 407 U. S.
269 -285 (1972). [ Footnote 16 ]

															The judgment of the Court of Appeals is affirmed. It is so ordered. Page 480 U. S. 37 [ Footnote 1 ]

															All references herein to the Internal Revenue Code are to the
1964 Code, not to the Internal Revenue Code of 1986, as it has been
designated by § 2(a) of the Tax Reform Act of 1986, 100 Stat.
2096.

															[ Footnote 2 ]

															The Tax Court put it this way:

															"It is not disputed that petitioner, during 1978, was engaged
full-time in parimutuel wagering on dog races, had no other
employment during that period, gambled solely for his own account,
and devoted an extraordinary amount of time and effort to his
gambling with a view to earning a living from such activity."

															82 T.C. 793, 795 (1984).

															[ Footnote 3 ]

															Respondent, however, did report his net gambling loss of $2,032
in Schedule E (Supplemental Income Schedule) of his return, but he
did not utilize that amount in computing his adjusted gross income
or claim it as an itemized deduction.

															[ Footnote 4 ]

															This statutory scheme was amended by the Tax Equity and Fiscal
Responsibility Act of 1982, § 201(a), 96 Stat. 411. For tax years
after 1982, gambling loss deductions explicitly are excluded from
the minimum tax base. The Commissioner acknowledges that a taxpayer
like respondent for a year after 1982 would not be subject to
minimum tax liability because of his gambling-loss deduction. Brief
for Petitioner 4, n. 4.

															[ Footnote 5 ] Compare Nipper v. Commissioner, 746 F.2d 813 (CA11
1984), aff'g, without opinion, 47 TCM 136, � 83,644 P-H
Memo TC (1983), and the Seventh Circuit's decision in the present
case, with Gajewski v. Commissioner, 723 F.2d 1062 (CA2
1983), cert. denied, 469 U.S. 818 (1984); Estate of
Cull v. Commissioner, 746 F.2d 1148 (CA6 1984), cert.
denied, 472 U.S. 1007 (1985); and Noto v. United
States, 770 F.2d 1073 (CA3 1985), aff'g, without
opinion, 598 F.
Supp. 440 (NJ 1984).

															Despite the interim reversals by the Second and Sixth Circuit in Gajewski and Cull, supra, the Tax Court has
adhered to its position that a full-time gambler is engaged in a
trade or business. See, e.g., Meredith v. Commissioner, 49
TCM 318, � 84,651 P-H Memo TC (1984); Barrish v.
Commissioner, 49 TCM 115, � 84,602 P-H Memo TC (1984). It has
drawn no distinction between the gambler and the active market
trader. See also Baxter v. United States, 633 F.
Supp. 912 (Nev. 1986).

															[ Footnote 6 ]

															Some sections of the Code, however, do define the term for
limited purposes. See § 366(b)(2), 26 U.S.C. § 366(b)(2)
(distribution of stock of controlled corporation); §§602(b) and
613(b), 26 U.S.C. §§602(b) and 613(b) (exempt organizations); and §
7701(a)(26), 26 U.S.C. § 7701(a)(26) (defining the term to include
"the performance of the functions of a public office").

															[ Footnote 7 ]

															Judge Friendly some time ago observed that

															"the courts have properly assumed that the term includes all
means of gaining a livelihood by work, even those which would
scarcely be so characterized in common speech." Trent v. Commissioner, 291 F.2d 669, 671 (CA2
1961).

															[ Footnote 8 ]

															We caution that in this opinion our interpretation of the phrase
"trade or business" is confined to the specific sections of the
Code at issue here. We do not purport to construe the phrase where
it appears in other places.

															[ Footnote 9 ] See, however, § 212 of the 1954 Code, 26 U.S.C. § 212.
This section has its roots in § 23(a)(2) of the 1939 Code, as added
by §121 of the Revenue Act of 1942, 56 Stat. 819. It allows as a
deduction all the ordinary and necessary expenses paid or incurred
"for the management, conservation, or maintenance of property held
for the production of income," and thus overcame the specific
ruling in Higgins that expenses of that kind were not
deductible. The statutory change, of course, does not read directly
on the term "trade or business." Obviously, though, Congress sought
to overcome Higgins and achieved that end.

															[ Footnote 10 ] Deputy v. Du Pont, 308 U. S. 488 (1940), however, was cited by the parties in their Higgins briefs
submitted to this Court. See Brief for Petitioner 28, 29,
40, and 61, and Brief for Respondent 17 and 18, in Higgins v.
Commissioner, 0. T. 1940, No. 263.

															[ Footnote 11 ]

															Today, however, the vast majority of States permit some form of
public gambling. The lottery, bingo, parimutuel betting, jai alai,
casinos, and slot machines easily come to mind.

															[ Footnote 12 ]

															"It takes a buyer to make a seller and it takes an opposing
gambler to make a bet." Boyle, What is a Trade or Business?, 39 Tax
Lawyer 737, 763 (1986).

															[ Footnote 13 ] Levin v. United States, 220 Ct. Cl. 197, 206, 697 F.2d
760; 766 (1979); Commissioner v. Nubar, 186 F.2d 684, 688
(CA4 1960), cert. denied, 341 U.S. 926 (1961); Fuld v.
Commissioner, 139 F.2d 466, 468-469 (CA2 1943). See also
Moller v. United States, 721 F.2d 810 (CA Fed. 1983), cert. denied, 467 U. S. 1261 (1984); Purvis v. Commissioner, 630 F.2d 1332, 1334 (CA9
1976).

															[ Footnote 14 ]

															Each of the three cases in conflict with the Seventh Circuit's
decision in the present case, see n. 6, supra, was a gambler's case, and adopted the Frankfurter gloss. Because
the same courts, in cases not involving gamblers, have not referred
to the Frankfurter gloss, see Bessenyey v. Commissioner, 379 F.2d 262 (CA2), cert. denied, 389 U.S. 931 (1967); Gestrich v. Commissioner, 681 F.2d 806 (CA3 1982), aff'g, without opinion, 74 T.C. 626 (1980), Main Line
Distributors, Inc. v. Commissioner, 321 F.2d 662 (CA6 1963),
it would appear that these courts in effect were creating a special
class of, and with special rules for, the full-time gambler. We
find no warrant for this in the Code.

															[ Footnote 15 ]

															"The more he lost, the more minimum tax he had to pay." Boyle,
39 Tax Lawyer, at 754. The Commissioner concedes that application
of the goods-or-services-test here "visits somewhat harsh
consequences" on taxpayer Groetzinger, Brief for Petitioner 36, and
"points to . . . perhaps unfortunate draftsmanship." Ibid. See
also Reply Brief for Petitioner 11.

															[ Footnote 16 ]

															It is possible, of course, that our conclusion here may subject
the gambler to self-employment tax, see §§1401-1403 of the
Code, and therefore may not be an unmixed blessing for him. Federal
taxes, however, rest where Congress has placed them.

															JUSTICE WHITE, with whom THE CHIEF JUSTICE and JUSTICE SCALIA
join, dissenting.

															The 1982 amendments to the Tax Code made clear that gambling is
not a trade or business. Under those amendments, the alternative
minimum tax base equals adjusted gross income reduced by specified
amounts, including gambling losses, and increased by items not
relevant here. See 26 U.S.C. §§ 55(b), 55(e)(1)(A), 165(d)
(1982 ed. and Supp. III). [ Footnote
2/1 ] If full-time gambling were a trade or business, a
full-time gambler's gambling losses would be "deductions . . .
attributable to a trade or business carried on by the taxpayer,"
and hence deductible from gross income in computing adjusted gross
income, 26 U.S.C. § 62(1), though only to the extent of gambling
winnings, 26 U.S.C. §165(d). To again subtract gambling losses (to
the extent of gambling winnings) from adjusted gross income when
computing the alternative minimum tax base would be to give the
full-time gambler a double deduction for alternative minimum tax
purposes, which was certainly not Congress' intent. [ Footnote 2/2 ] Thus, when Congress amended
the alternative minimum tax provisions in 1982, it implicitly
accepted the teaching of Gentile v. Commissioner, 65 T.C.
1 (1975), that gambling is not a trade or business. [ Footnote 2/3 ] Groetzinger would have had no
problem under the 1982 amendments.

															One could argue, I suppose, that although gambling is not a
trade or business under the 1982 amendments, it was in 1978, the
tax year at issue here. But there is certainly no indication that
Congress intended in 1982 to alter the status of gambling as a
trade or business. Rather, Congress was correcting an inequity that
had arisen because gambling is not a trade or business,
just as, 40 years earlier, Congress had, by enacting the
predecessor to 26 U.S.C. §212, corrected an inequity that became
apparent when this Court held that a full-time investor is not
engaged in a trade or business. See Higgins v.
Commissioner, 312 U. S. 212 (1941). In neither case did Congress attempt to alter the
then-prevailing definition of trade or business, nor do I think
this Court should do so now to avoid a harsh result in this case.
[ Footnote 2/4 ] In any event, the
Court should recognize that its holding is a sport that applies
only to a superseded statute, and not to the tax years governed by
the 1982 amendments. Accordingly, I dissent.

															[ Footnote 2/1 ]

															All references are to the Code as it stood prior to the 1986
amendments.

															[ Footnote 2/2 ]

															Consider two single individuals filing for the tax year ending
December 31, 1986: A has $75,000 in nongambling income, and $75,000
in itemized nongambling deductions; B, a full-time gambler, has
$75,000 in gambling winnings, $75,000 in gambling losses, $75,000
in nongambling income, and $75,000 in itemized nongambling
deductions. A's gross income and adjusted gross income are both
$75,000, and so is his alternative minimum tax base. The
alternative minimum tax assessed on A is 20% of the excess of
$75,000 over $30,000, see 26 U.S.C. §§55(a), 55(f)(1)(B),
or $9,000. Assuming that full-time gambling is a trade or business,
B has gross income of $150,000, adjusted gross income of $75,000
(because his gambling losses are attributable to a trade or
business), and an alternative minimum tax base of zero (because
gambling losses are deducted from adjusted gross income in
computing the alternative minimum tax base). Thus, if full-time
gambling were treated as a trade or business, B's gambling losses
would shield him against the $9,000 minimum tax that Congress
clearly intended him to pay.

															"The Code should not be interpreted to allow [a taxpayer] 'the
practical equivalent of a double deduction,' Charles Ilfeld Co.
v. Hernandez, 292 U. S. 62 , 292 U. S.
68 (1934), absent a clear declaration of intent by
Congress." United States v. Skelly Oil Co., 394 U.
S. 678 , 394 U. S. 684 (1969). There is no such clear declaration of intent accompanying
the 1982 amendments.

															[ Footnote 2/3 ]

															The Commissioner had acquiesced in Gentile. See 1980-2
Cum. Bull. 1, 4, n.39.

															[ Footnote 2/4 ]

															While the consequences of accepting the Commissioner's position
in this case may be harsh to the respondent -- which is no doubt
why Congress amended the relevant Code provisions in 1982 -- I find
the Court's characterization of the result as a tax on gambling
losses, ante at 480 U. S. 35 ,
somewhat misleading. If gambling is not a trade or business, the
practical effect of the minimum tax on tax preference items is to
reduce the deduction allowed for gambling losses from an amount
equal to 100% of gambling winnings to some lesser percentage of
gambling winnings.


U.S. Supreme Court United States v. General Dynamics, 481
U.S. 239 (1987) United States v. General
Dynamics No. 85-1385 Argued January 13,
1987 Decided April 22,
1987 481
U.S. 239 CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL CIRCUIT Syllabus Under the "all events" test, as embodied in Treasury
Regulations, an accrual-basis taxpayer is entitled to deduct a
business expense for the taxable year in which all events have
occurred which determine the fact of the taxpayer's liability, and
in which the amount of that liability can be determined with
reasonable accuracy. In the year at issue, a consolidated federal
income tax return was filed by General Dynamics Corporation and
several of its wholly owned subsidiaries (hereafter respondent).
Respondent is an accrual-basis taxpayer whose fiscal year is the
calendar year. Beginning in 1972, it became a self-insurer with
regard to its employee medical care plan. To receive medical
payment reimbursements, employees must submit claims forms to
employee benefits personnel, who verify eligibility and forward
worthy claims to the plan's administrators, whose claims processors
review the claims and approve covered expenses for payment. To
account for the delay between the provision of medical services and
the payment of claims, respondent established reserve accounts
reflecting its liability for medical care received, but still not
paid for, as of December 31, 1972. On its amended 1972 tax return,
respondent sought a refund based on its claimed deduction of its
reserve as an accrued expense. The Internal Revenue Service
disallowed the deduction, but the Claims Court sustained it,
holding that "all events" which determined the fact of respondent's
liability had taken place when its employees received covered
services, and that the amount of liability could be determined with
reasonable accuracy. The Court of Appeals affirmed. Held: Where the filing of claims is a condition
precedent to liability, an accrual-basis taxpayer providing medical
benefits to its employees cannot deduct at the close of the taxable
year an estimate of its obligation to pay for medical care obtained
by employees or their qualified dependents during the final quarter
of the year, claims for which have not been reported to the
employer. Pp. 481 U. S.
242 -247.

															(a) The proposed deduction fails the "all events" test, because
it depends on a mere estimate of respondent's liability based on
events that had not occurred before the close of the 1972 taxable
year. The last event necessary to fix respondent's liability was
not the receipt of medical Page 481 U. S. 240 care by covered individuals, but the filing of properly
documented claims forms. Such filing is not a mere technicality,
nor is the possibility that some employees might not file claims
after receiving services "extremely remote and speculative." Pp. 481 U. S.
242 -245.

															(b) Respondent has not demonstrated that its liability as to any
medical care claims was firmly established as of the close of the
1972 taxable year. Although the parties stipulated that respondent
had not received claims for all services rendered during the year
by the year's end, and that some claims received had not been
processed at that time, respondent failed to show what portion of
the claims had been filed by the end of the year, or even that it
knew of specific claims that had been filed, but not yet processed.
The fact that respondent may have been able to make a reasonably
accurate actuarial estimate of how many claims would be filed for
the last quarter of 1972 cannot justify a deduction. If the "all
events" test permitted such a deduction, Congress would not have
retained 26 U.S.C. § 832(b)(5), which allows insurance companies to
deduct additions to reserves for "incurred but not reported"
claims. Pp. 481 U. S.
245 -247.

															773 F.2d 1224, reversed.

															MARSHALL, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and BRENNAN, WHITE, POWELL, and SCALIA, JJ.,
joined. O'CONNOR, J., filed a dissenting opinion, in which BLACKMUN
and STEVENS, JJ., joined, post, p. 481 U. S.
247 .

															JUSTICE MARSHALL delivered the opinion of the Court.

															The issue in this case is whether an accrual-basis taxpayer
providing medical benefits to its employees may deduct at the close
of the taxable year an estimate of its obligation to pay for
medical care obtained by employees or their qualified dependents
during the final quarter of the year, claims for which have not
been reported to the employer. Page 481 U. S. 241 I Taxpayers, respondents herein, are the General Dynamics
Corporation and several of its wholly owned subsidiaries (General
Dynamics). [ Footnote 1 ] General
Dynamics uses the accrual method of accounting for federal tax
purposes; its fiscal year is the same as the calendar year. From
1962 until October 1, 1972, General Dynamics purchased group
medical insurance for its employees and their qualified dependents
from two private insurance carriers. Beginning in October, 1972,
General Dynamics became a self-insurer with regard to its medical
care plans. Instead of continuing to purchase insurance from
outside carriers, it undertook to pay medical claims out of its own
funds, while continuing to employ private carriers to administer
the medical care plans.

															To receive reimbursement of expenses for covered medical
services, respondent's employees submit claims forms to employee
benefits personnel, who verify that the treated persons were
eligible under the applicable plan as of the time of treatment.
Eligible claims are then forwarded to the plan's administrators.
Claims processors review the claims and approve for payment those
expenses that are covered under the plan.

															Because the processing of claims takes time, and because
employees do not always file their claims immediately, there is a
delay between the provision of medical services and payment by
General Dynamics. To account for this time lag, General Dynamics
established reserve accounts to reflect its liability for medical
care received, but still not paid for, as of December 31, 1972. It
estimated the amount of those reserves with the assistance of its
former insurance carriers.

															Originally, General Dynamics did not deduct any portion of this
reserve in computing its tax for 1972. In 1977, however, Page 481 U. S. 242 after the Internal Revenue Service (IRS) began an audit of its
1972 tax return, General Dynamics filed an amended return, claiming
it was entitled to deduct its reserve as an accrued expense, and
seeking a refund. The IRS disallowed the deduction, and General
Dynamics sought relief in the Claims Court.

															The Claims Court sustained the deduction, holding that it
satisfied the "all events" test embodied in Treas.Reg. §
1.4611(a)(2), 26 CFR § 1.461-1(a)(2) (1986), since "all events"
which determined the fact of liability had taken place when the
employees received covered services, and the amount of liability
could be determined with reasonable accuracy. Thus, the court held
that General Dynamics was entitled to a refund. 6 Cl.Ct. 250
(1984). The Court of Appeals for the Federal Circuit affirmed,
largely on the basis of the Claims Court opinion. 773 F.2d 1224,
1226 (1985).

															The United States sought review of the question whether all the
events necessary to fix liability had occurred. [ Footnote 2 ] We granted certiorari, 476 U.S.
1181 (1986). We reverse. II As we noted in United States v. Hughes Properties,
Inc., 476 U. S. 593 , 476 U. S. 600 (1986), whether a business expense has been "incurred" so as to
entitle an accrual-basis taxpayer to deduct it under § 162(a) of
the Internal Revenue Code, 26 U.S.C. § 162(a), is governed by the
"all events" test that originated in United States v.
Anderson, 269 U. S. 422 , 269 U. S. 441 (1926). In Anderson, the Court held that a taxpayer was
obliged to deduct from its 1916 income a tax on profits from
munitions sales that took place in 1916. Although the tax would not
be assessed, and therefore would not formally be due until 1917,
all the events which fixed the amount of the tax and determined the
taxpayer's liability to pay it Page 481 U. S. 243 had occurred in 1916. The test is now embodied in Treas.Reg. §
1.461-1(a)(2), 26 CFR § 1.461-1(a)(2) (1986), which provides
that

															"[u]nder an accrual method of accounting, an expense is
deductible for the taxable year in which all the events have
occurred which determine the fact of the liability and the amount
thereof can be determined with reasonable accuracy. [ Footnote 3 ]"

															It is fundamental to the "all events" test that, although
expenses may be deductible before they have become due and payable,
liability must first be firmly established. This is consistent with
our prior holdings that a taxpayer may not deduct a liability that
is contingent, see Lucas v. American Code Co., 280 U. S. 445 , 280 U. S. 452 (1930), or contested, see Security Flour Mills Co. v.
Commissioner of Internal Revenue, 321 U.
S. 281 , 321 U. S. 284 (1944). 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 Page 481 U. S. 244 close of the taxable year. Brown v. Helvering, 291 U. S. 193 , 291 U. S. 201 (1934); cf. American Automobile Assn. v. United States, 367 U. S. 687 , 367 U. S. 693 (1961).

															We think that this case, like Brown, involves a mere
estimate of liability based on events that had not occurred before
the close of the taxable year, and therefore the proposed deduction
does not pass the "all events" test. We disagree with the legal
conclusion of the courts below that the last event necessary to fix
the taxpayer's liability was the receipt of medical care by covered
individuals. [ Footnote 4 ] A
person covered by a plan could only obtain payment for medical
services by filling out and submitting a health expense benefits
claim form. App. 23. Employees were informed that submission of
satisfactory proof of the charges claimed would be necessary to
obtain payment under the plans. Id. at 58. General
Dynamics was thus liable to pay for covered medical services only
if properly documented claims forms were filed. [ Footnote 5 ] Some covered individuals, through
oversight, procrastination, confusion over the coverage provided,
or fear of disclosure to the employer of the extent or nature of
the services received, might not file claims for reimbursement to
which they are plainly entitled. Such filing is not a mere
technicality. It is crucial to the establishment of liability on
the part of the taxpayer. Nor does the failure to file a claim
represent the type of "extremely remote and speculative
possibility" that we Page 481 U. S. 245 held in Hughes, 476 U.S. at 476 U. S. 601 ,
did not render an otherwise fixed liability contingent. Cf.
Lucas v. North Texas Lumber Co., 281 U. S.
11 , 281 U. S. 13 (1930) (where executory contract of sale was created in 1916 but
papers necessary to effect transfer were not prepared until 1917,
unconditional liability for the purchase price was not created in
1916, and the gain from the sale was therefore not realized until
1917). Mere receipt of services for which, in some instances,
claims will not be submitted does not, in our judgment, constitute
the last link in the chain of events creating liability for
purposes of the "all events" test.

															The parties stipulated in this case that, as of December 31,
1972, the taxpayer had not received all claims for medical
treatment services rendered in 1972, and that some claims had been
filed for services rendered in 1972 that had not been processed.
App. 26. The record does not reflect which portion of the claims
against General Dynamics for medical care had been filed but not
yet processed and which portion had not even been filed at the
close of the 1972 tax year. The taxpayer has the burden of proving
its entitlement to a deduction. Helvering v. Taylor, 293 U. S. 507 , 293 U. S. 514 (1935). Here, respondent made no showing that, as of December 31,
1972, it knew of specific claims which had been filed but which it
had not yet processed. Because the taxpayer failed to demonstrate
that any of the deducted reserve represented claims for which its
liability was firmly established as of the close of 1972, all the
events necessary to establish liability were not shown to have
occurred, and therefore no deduction was permissible.

															This is not to say that the taxpayer was unable to forecast how
many claims would be filed for medical care received during this
period, and estimate the liability that would arise from those
claims. Based on actuarial data, General Dynamics may have been
able to make a reasonable estimate of how many claims would be
filed for the last quarter of 1972. But that alone does not justify
a deduction. In Brown, supra, Page 481 U. S. 246 the taxpayer, a general agent for insurance companies, sought to
take a deduction for a reserve representing estimated liability for
premiums to be returned on the percentage of insurance policies it
anticipated would be cancelled in future years. The agent may well
have been capable of estimating with a reasonable degree of
accuracy the ratio of cancellation refunds to premiums already
paid, and establishing its reserve accordingly. Despite the "strong
probability that many of the policies written during the taxable
year" would be cancelled, 291 U.S. at 291 U. S. 201 ,
the Court held that

															"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." Id. at 291 U. S. 200 .
A reserve based on the proposition that a particular set of events
is likely to occur in the future may be an appropriate conservative
accounting measure, but does not warrant a tax deduction. See
American Automobile Assn. v. United States, supra, at 367 U. S. 692 ; Lucas v. American Code Co., 280 U.S. at 280 U. S.
452 .

															That these estimated claims were not intended to fall within the
"all events" test is further demonstrated by the fact that the
Internal Revenue Code specifically permits insurance companies to
deduct additions to reserves for such "incurred but not reported"
(IBNR) claims. See 26 U.S.C. § 832(b)(5) (providing that
an insurance company may treat as losses incurred "all unpaid
losses outstanding at the end of the taxable year"); § 832(c)(4)
(permitting deduction of losses incurred as defined in §
832(b)(5)). [ Footnote 6 ] If the
"all events" test permitted the deduction of an estimated reserve
representing claims that were actuarially likely but not yet
reported, Congress would not have needed to maintain an Page 481 U. S. 247 explicit provision that insurance companies could deduct such
reserves. [ Footnote 7 ]

															General Dynamics did not show that its liability as to any
medical care claims was firmly established as of the close of the
1972 tax year, and is therefore entitled to no deduction. The
judgment of the Court of Appeals is Reversed. [ Footnote 1 ]

															Respondents filed a consolidated federal income tax return for
1972, the year at issue here. We therefore treat them as a single
entity.

															[ Footnote 2 ]

															The United States did not seek review of whether the amount of
liability in this case could be determined with reasonable
accuracy. See Pet. for Cert. 13, n. 2.

															[ Footnote 3 ]

															The regulation in force in 1972 was identical to the present
version. See 26 CFR § 1.461-1(a)(2) (1972).

															The "all events" test has been incorporated into the Internal
Revenue Code by the Deficit Reduction Act of 1984, Pub.L. 98-369,
98 Stat 598, 607, 26 U.S.C. § 461(h)(4) (1982 ed., Supp. III).
Section 461(h) imposed limits on the application of the test,
providing 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."

															§ 461(h)(1). The pertinent portions of the 1984 amendments were
retained in the Tax Reform Act of 1986.

															Section 461(h) does not apply in this case. It became effective
as of July 18, 1984, the date of the enactment of the Deficit
Reduction Act. See § 91(g)(1)(A), 26 U.S.C. § 461 note
(1982 ed., Supp. III). While that statute permits a taxpayer to
elect the application of § 461(h) to amounts incurred on or before
July 18, 1984, see § 91(g)(2), there is no indication that
the taxpayer here has done so. We do not address how this case
would be decided under § 461(h), but note that the legislative
history of the Act indicates that,

															"[i]n the case of . . . employee benefit liabilities, which
require a payment by the taxpayer to another person, economic
performance occurs as the payments to such person are made."

															H.R.Rep. No. 98-432, pt. 2, p. 1255 (1984); see also H.Conf.Rep. No. 98-861, p. 872 (1984).

															[ Footnote 4 ]

															We do not challenge the Claims Court's factual conclusion that
the processing of the claims was "routine," "clerical," and
"ministerial in nature," 6 Cl.Ct. 250, 254 (1984). The Claims Court
did not, however, make any factual findings with respect to the filing of claims. We conclude that, as a matter of law,
the filing of a claim was necessary to create liability.

															[ Footnote 5 ]

															General Dynamics could not avoid its obligation to pay for
services after they were received by, for example, discharging the
employee. If an employee were terminated after receiving covered
services but before filing a claim, the taxpayer would still be
obliged to reimburse that employee, App. 22 -- but only in the
event that the employee filed a claim form. The filing of the
claim is thus a true condition precedent to liability on the part
of the taxpayer.

															[ Footnote 6 ]

															During the time that private insurance carriers provided
insurance coverage for General Dynamics employees, the insurers
maintained reserves for IBNR claims and deducted those reserves in
the tax year in which the services were received. 6 Cl.Ct. at
262.

															[ Footnote 7 ]

															Respondent has never sought to be treated as an insurance
company entitled to take IBNR deductions under the provisions of
Subchapter L.

															JUSTICE O'CONNOR, with whom JUSTICE BLACKMUN and JUSTICE STEVENS
join, dissenting.

															Section 446(a) of the Internal Revenue Code of 1954 provides
that taxable income

															"shall be computed under the method of accounting on the basis
of which the taxpayer regularly computes his income in keeping his
books."

															The Code specifically recognizes the use of "an accrual method,"
26 U.S.C. § 446(c)(2), under which a taxpayer is permitted to
deduct an expense in the year in which it is "incurred," regardless
of when it is actually paid. § 162(a). Under the "all events" test,
long applied by this Court and the Internal Revenue Service, an
expense may be accrued and deducted when all the events that
determine the fact of liability have occurred, and the amount of
the liability can be determined with reasonable accuracy.
Treas.Reg. § 1.461-1, 26 CFR § 1.461-1(a)(2) (1986). Because the
Court today applies a rigid version of the "all events" test that
retreats from our most recent application of that test, and
unnecessarily drives a greater wedge between tax and financial
accounting methods, I respectfully dissent.

															This case calls for the Court to revisit the issue addressed
only last Term in United States v. Hughes Properties,
Inc., 476 U. S. 593 (1986). At issue in Hughes Properties was whether a casino
operator utilizing the accrual method of accounting could deduct
amounts guaranteed for payment on "progressive" slot machines, but
not yet won by a playing Page 481 U. S. 248 patron. A progressive slot machine has a jackpot whose size
increases as money is gambled on the machine. Under Nevada law, a
casino operator is prohibited from reducing the amount of the
progressive jackpot. We concluded, therefore, that all the events
had occurred that determine the fact of the casino operator's
liability, despite the fact that the jackpot might not be won for
as long as four years. We rejected the argument made by the United
States that the casino operator's obligation to pay the jackpot
arose only upon a winning patron's pull of the handle, even though
it was conceivable that the jackpot might never be won:

															"There is always a possibility, of course, that a casino may go
out of business, or surrender or lose its license, or go into
bankruptcy, with the result that the amounts shown on the jackpot
indicators would never be won by playing patrons. But this
potential nonpayment of an incurred liability exists for every
business that uses an accrual method, and it does not prevent
accrual. See, e.g., Wien Consolidated Airlines, Inc. v.
Commissioner, 528 F.2d 735 (CA9 1976). 'The existence of an
absolute liability is necessary; absolute certainty that it will be
discharged by payment is not.' Helvering v. Russian Finance
& Constr. Corp., 77 F.2d 324, 327 (CA2 1935)." United States v. Hughes Properties, Inc., supra, at 476 U. S.
605 -606.

															In my view, the circumstances of this case differ little from
those in Hughes Properties. The taxpayer here is seeking
to deduct the amounts reserved to pay for medical services that are
determined to have been provided to employees in the taxable year,
whether or not the employees' claims for benefits have been
received. The taxpayer's various medical benefits plans provided
schedules for the medical and hospital benefits, and created a
contractual obligation by the taxpayer to pay for the covered
services upon presentation of a claim. The courts below found that
the obligation to pay became fixed once the covered medical
services were received Page 481 U. S. 249 by the employee. See App. 25. Once the medical services
were rendered to an employee while the relevant benefit plan was in
effect, General Dynamics could not avoid liability by terminating
the plan prior to the filing of a claim. Id. at 133-134.
Neither could General Dynamics extinguish its liability by firing
an employee before the employee filed a claim for benefits. Id. at 87.

															It is true, of course, that it was theoretically possible that
some employees might not file claim forms. In my view, however,
this speculative possibility of nonpayment differs not at all from
the speculation in Hughes Properties that a jackpot might
never be paid by a casino. As we observed in Hughes
Properties, the potential of nonpayment of a liability always
exists, and it alone does not prevent accrual. The beneficiary of a
liability always has the option of waiving payment, but a taxpayer
is still unquestionably entitled to deduct the liability. An
injured employee entitled absolutely to reimbursement for medical
services under a workers' compensation statute, for example, may
fail to utilize the medical services. The employer, however, has
been held to be entitled to deduct the expected medical expenses,
because the workers' compensation law creates liability. See
Wien Consolidated Airlines, Inc. v. Commissioner, 528 F.2d 735
(CA9 1976) (holding that accrual basis taxpayer may deduct expected
workers' compensation payments in year of injury even though
injured workers may not utilize medical benefits). Similarly, any
business liability could ultimately be discharged in bankruptcy, or
a check might never be cashed by its recipient. There can be no
doubt, however, that these remote possibilities alone cannot defeat
an accrual basis taxpayer's right to deduct the liability when
incurred.

															The Claims Court found that the processing of the employees'
claims was "routine," and "ministerial in nature," 6 Cl.Ct. 250,
254 (1984), and the majority does not question that finding. Ante at 481 U. S. 244 ,
n. 4. Instead, the majority holds that "as a matter of law, the
filing of a claim was necessary Page 481 U. S. 250 to create liability." Ibid. Even if, in a technical
sense, the Court is correct that the filing of a claim is a
necessary precondition to liability as a matter of law, the failure
to file a claim is, at most, a "merely formal contingenc[y], or
[one] highly improbable under the known facts," that this Court has
viewed as insufficient to preclude accrual and deductability. 2 J.
Mertens, Law of Federal Income Taxation § 12.62, p. 241 (M.
Weinstein, R. Donovan, P. Gaveras, H. Piech, & R. Neeld
rev.1985). Indeed, in the very case that first announced the "all
events" test, United States v. Anderson, 269 U.
S. 422 (1926), this Court concluded that a taxpayer
should deduct a federal munitions tax before the year in which the
tax was even assessed -- in effect before the Government had made a
claim for the tax. The Court recognized that, "[i]n a technical
legal sense, it may be argued that a tax does not accrue until it
has been assessed and becomes due," but concluded that otherwise
all the events that determined the liability for the munitions tax
had occurred. Id. at 269 U. S. 441 .
Similarly, in Continental Tie & Lumber Co. v. United
States, 286 U. S. 290 (1932), the Court held that an accrual basis taxpayer should
immediately include as income a federal payment to railroads
created by statute, but neither claimed by the taxpayer nor awarded
by the Federal Government until years later. The Court explained
that, although no railroad had any vested right to payments under
the statute until a claim was made by the railroad and awarded by
the Interstate Commerce Commission,

															"[t]he right to the award was fixed by the passage of the
Transportation Act. What remained was mere administrative procedure
to ascertain the amount to be paid." Id. at 286 U. S. 295 .
Clearly, the right to reimbursement for medical benefits under any
of the medical benefits plans at issue in this case arises once
medical services are rendered; the filing and processing of a claim
is purely routine and ministerial, and in the nature of a formal
contingency, as correctly perceived by the courts below. Page 481 U. S. 251 The holding of the Court today unnecessarily burdens taxpayers
by further expanding the difference between tax and business
accounting methods without a compelling reason to do so. Obviously,
tax accounting principles must often differ from those of business
accounting. The goal of business accounting "is to provide useful
and pertinent information to management, shareholders, and
creditors," while "the responsibility of the Internal Revenue
Service is to protect the public fisc." United States v. Hughes
Properties, Inc., 476 U.S. at 476 U. S. 603 .
Therefore, while prudent businesses will accrue expenses that are
merely reasonably foreseeable, for tax purposes, the liability must
be fixed. But Congress has expressly permitted taxpayers to use the
accrual method of accounting, and from its inception in United
States v. Anderson, supra, the "all events" test has been a
practical adjustment of the competing interests in permitting
accrual accounting and protecting the public fisc. Unfortunately,
the Court today ignores the pragmatic roots of the "all events"
test, and instead applies it in an essentially mechanistic and
wholly unrealistic manner. Because the liability in this case was
fixed with no less certainty than the range of expenses both
routinely accrued by accrual method taxpayers and approved as
deductible for tax purposes by this Court and other courts in a
variety of circumstances, I respectfully dissent.