Accrual of Gambling Debts Under Internal Revenue Code Section 451

This Note examines whether an accrual-basis taxpayer must include a legally unenforceable claim in taxable income when it is executed or satisfied. Section I of the Note interprets the “all events test” to require measurement of the likelihood of payment of a debt at the time it is executed: If payment is sufficiently certain, the debt must be accrued. The section concludes that the casinos must include the outstanding markers as income in the year of their execution, and cannot postpone their inclusion until the debts are repaid. Section II argues that accrual-method taxpayers are entitled to use a “bad debt reserve” to deduct unenforceable debts that may prove uncollectible.