Tax Legal Services · Primary-source case analysis

Hughes Properties: A Fixed Liability May Accrue Before the Payee Is Known

By Aneeta Mishra and Timothy Chan

Published September 11, 2026

Hughes Properties increased progressive slot-machine jackpots as customers played. At each year end, it accrued the displayed amounts as business expenses even though no patron had yet won those jackpots.

The all-events test requires a fixed liability

An accrual-method taxpayer may deduct an expense when all events fixing liability have occurred and the amount is determinable with reasonable accuracy. A mere reserve for a contingent future obligation does not qualify.

Nevada law made the jackpot irrevocable

Once the machine displayed an increased jackpot, the casino could not reduce it or remove the machine from play without preserving the amount for another machine. That regulatory obligation fixed the liability beyond the casino’s control.

The payee and payment date could remain unknown

The identity of the future winner and the timing of the win did not make the liability contingent. Absolute liability was necessary; certainty that it would be discharged at a particular time to a particular person was not.

Tax accounting remained subject to anti-abuse controls

The Court found no evidence that the casino manipulated jackpots to avoid tax and noted the Commissioner’s authority to require an accounting method that clearly reflects income. The holding did not validate artificial reserves lacking a fixed legal obligation.

Key takeaways

• Identify the event that makes the liability legally irrevocable.
• Separate uncertainty about payment timing or payee from uncertainty about liability.
• Confirm that the amount is determinable with reasonable accuracy.
• Evaluate whether the accounting method clearly reflects income and avoids artificial reserves.