Before: Betty B. Fletcher, Thomas G. Nelson, Circuit Judges, and Robert H. Whaley,** District Judge.
The opinion of the court was delivered by: Whaley, District Judge
Appeal from the United States District Court for the District of Nevada Howard D. McKibben, District Judge, Presiding
Submitted December 12, 1997* San Francisco, California
*The panel unanimously finds this case suitable for submission without oral argument pursuant to Fed. R. App. 34(a) and Ninth Circuit Rule 34.4. **Honorable Robert H. Whaley, United States District Judge for the Eastern District of Washington, sitting by designation.
The United States of America and Commissioner of Internal Revenue appeal the district court's grant of summary judgment in favor of Gold Coast Hotel & Casino, et al. The district court held that a casino using the accrual method of accounting may deduct the value of slot club points won by a slot club member in the tax year in which the member has accumulated the minimum number of points necessary to redeem a prize. We affirm.
Gold Coast Hotel & Casino ("Gold Coast") is a Nevada limited partnership formed in 1985 for the purpose of operating a licensed gambling casino in Las Vegas, Nevada. Gold Coast has operated a slot club since March 1987. A slot club is a promotional tool used to attract slot machine players. After filling out the necessary paperwork, slot club members receive a club card, similar to an ATM card. Slot club members insert their club cards into a slot machine and a computer tracks their accumulation of slot club points.
Slot club 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. As stipulated to by the parties, the market value of each club point is $0.0021. Accordingly, 100,000 points have a value of $210. Gold Coast uses a computerized data bank to track each club member's slot club points. The computer credits a member's account for points won and debits the account when points are redeemed for prizes.
Members can redeem slot club points for prizes in two ways. First, members can go to Gold Coast's redemption center and pick their prize. Alternatively, club members can go to the redemption center and get a voucher for a prize from an off-site retailer, such as a travel agency or appliance store. The club member then takes the voucher to the off-site retailer to redeem the prize and the retailer bills Gold Coast a previously agreed upon amount.
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. Thus, 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. Gold Coast deducted this amount -- $720,979 -- as an expense on its 1989 partnership tax return. In addition, on its 1989 tax return Gold Coast recaptured as income $105,969, representing the ...