Giant Eagle took a nose dive in a recent case before the Tax Court.
The huge supermarket and gas station chain wanted to claim a tax deduction for unredeemed discounts issued through its “Fuelperks!” campaign.
Fuelperks! offered customers discounted gas and diesel fuel from its GetGo gas stations when they presented a card while buying goods and services from Giant Eagle. All the fuel discounts were aggregated and used to reduce the price of fuel at the time of redemption. Any excess discounts could be held over on a loyalty card until they expired, which was three months from the last day of the month in which they were earned.
The chain store deducted the estimated costs of redeeming a portion of the issued Fuelperks! that were unexpired and unredeemed at the end of each tax year.
The Tax Court found against Giant Eagle because the unredeemed discounts did not satisfy the “all events” test since the liability for the discounts became fixed when the discounts were redeemed, not when they were earned.
The court said that an accrual basis taxpayer may receive a deduction in the year the expense is incurred under the all-events test when all three of the following requirements are satisfied:
1. All events have occurred that establish the fact of the liability.
2. The amount of the liability can be determined with reasonable accuracy.
3. Economic performance has occurred with respect to the liability.
In its Memoranda decision, the court said Giant Eagle failed the first requirement because all events had not occurred to establish the supermarket’s liability for unredeemed discounts (T.C. Memo, 2014-146, 108 T.C.M. 67).