  United States Court of Appeals
      for the Federal Circuit
                ______________________

  MASSACHUSETTS MUTUAL LIFE INSURANCE
       COMPANY, on its own behalf, AND
  MASSACHUSETTS MUTUAL LIFE INSURANCE
   COMPANY, as successor to CONNECTICUT
    MUTUAL LIFE INSURANCE COMPANY,
              Plaintiff-Appellee

                           v.

                  UNITED STATES,
                 Defendant-Appellant
                ______________________

                      2014-5019
                ______________________

    Appeal from the United States Court of Federal
Claims in No. 1:07-cv-00648-MBH, Judge Marian Blank
Horn.
                ______________________

                Decided: April 9, 2015
                ______________________

     BERNARD JOHN WILLIAMS, JR., Skadden, Arps, Slate,
Meagher & Flom LLP, Washington, DC, argued for plain-
tiff-appellee. Also represented by DAVID W. FOSTER, ALAN
J. SWIRSKI, PAUL MCLAUGHLIN.

    ARTHUR THOMAS CATTERALL, Tax Division, United
States Department of Justice, Washington, DC, argued
2                      MASSACHUSETTS MUTUAL LIFE INS   v. US



for defendant-appellant. Also represented by ROBERT
WILLIAM METZLER, TAMARA W. ASHFORD.
                ______________________

    Before LOURIE, MOORE, and O’MALLEY, Circuit Judges.
O’MALLEY, Circuit Judge.
    The government appeals a judgment of the United
States Court of Federal Claims in favor of Massachusetts
Mutual Life Insurance Company (“MassMutual”) and
Connecticut Mutual Life Insurance Company (“ConnMu-
tual”). The Court of Federal Claims ruled that MassMu-
tual and ConnMutual were legally authorized to deduct
policyholder dividends from their 1995, 1996, and 1997
tax returns in the year before the dividends were actually
paid. See Mass. Mut. Life Ins. Co. v. United States, 103
Fed. Cl. 111 (2012). The parties agree that both compa-
nies may deduct the policyholder dividend payments at
some point. They dispute the timing of the deductions,
however; they debate whether the deductions may be
taken in the year the insurance companies guaranteed
the dividends, or may only be taken the following year—
when the dividends were actually distributed to the
policyholders.
    The government contends that, because the liability to
pay the dividends at issue is contingent on other events,
such as a policyholder’s decision to maintain his or her
policy through the policy’s anniversary date, the liability
has not been established in the year the dividends were
determined. Because a liability must be fixed before it
can be deducted, the government argues that MassMutual
and ConnMutual could not deduct their obligations until
the following year. Even if the liability was fixed, the
government alleges that these payments still could not
have been deducted until the year they were actually paid
because the dividends did not qualify as rebates or re-
funds, which would meet the recurring item exception to
MASSACHUSETTS MUTUAL LIFE INS    v. US                      3



the requirement that economic performance or payment
occur before a deduction may be taken.
    Because we find that MassMutual’s and ConnMutu-
al’s policyholder dividends were fixed in the year the
dividends were announced, that the dividends in question
are premium adjustments, and that premium adjust-
ments are rebates, thereby satisfying the recurring item
exception, we affirm.
                       BACKGROUND
    Under the tax code, one can elect to recognize reve-
nues and liabilities using different accounting methods,
such as the “cash receipts and disbursement method” and
the “accrual method.” See 26 U.S.C. § 446(c). If a taxpay-
er uses the accrual method, which life insurance compa-
nies usually employ, 1 an expense can be deducted in the
year in which the liability is incurred, as opposed to the
year in which it is paid. In order to determine if a liabil-
ity has accrued during a taxable year, one must deter-
mine if the liability satisfies the “all events” test and if
economic performance or payment of the liability has
occurred. 26 U.S.C. § 461(h)(1),(4); see also United States
v. Gen. Dynamics Corp., 481 U.S. 239, 243 n.3 (1987).
The liability satisfies the “all events” test when “all events
have occurred which determine the fact of liability and
the amount of such liability can be determined with
reasonable accuracy.” 26 U.S.C. § 461(h)(4). If all three




    1   See 26 U.S.C. § 811(a) (“All computations entering
into the determination of the taxes imposed by this part
[upon life insurance companies] shall be made [] (1) under
an accrual method of accounting, or (2) to the extent
permitted under regulations prescribed by the Secretary,
under a combination of an accrual method of accounting
with any other method permitted by this chapter.”).
4                      MASSACHUSETTS MUTUAL LIFE INS     v. US



conditions are satisfied, the expense may be deducted
before it is paid.
    There are exceptions to this general principle, howev-
er. For example, if the liability is “recurring in nature
and the taxpayer consistently treats items of such kind as
incurred in the taxable year in which [the all events test
is met],” then a taxpayer may deduct it during any taxa-
ble year wherein the all events test is met, if the liability
“is not a material item, or the accrual of such item in the
taxable year in which the requirements of [the all events
test] are met results in a more proper match against
income than accruing such item in the taxable year in
which economic performance occurs.”               26 U.S.C.
§ 461(h)(3). Further, economic performance with respect
to that liability must “occur[] within the shorter of—a
reasonable period after the close of such taxable year, or
8 1/2 months after the close of such taxable year.” Id.
Therefore, if a taxpayer can demonstrate that economic
performance will occur within a certain time frame in the
next taxable year, that the liability is recurring, and
either that the item is immaterial or that the accrual of
the liability in a particular taxable year results in a better
matching of the deduction with the income to which it
relates (“the matching requirement”), the liability can be
treated as incurred during that taxable year. Id.; 26
C.F.R. § 1.461-5.
    Under Treasury Regulations, certain liabilities are
deemed to meet the matching requirement without fur-
ther consideration. These liabilities include rebates and
refunds. 26 C.F.R. § 1.461-5(b)(5)(ii) (“In the case of a
liability described in paragraph (g)(3) (rebates and re-
funds) . . . of § 1.461-4, the matching requirement . . .
shall be deemed satisfied.”).
              A. Disputed Insurance Policies
   MassMutual is a mutual life insurance company
based in Massachusetts. In 1996, MassMutual merged
MASSACHUSETTS MUTUAL LIFE INS   v. US                     5



with ConnMutual, with MassMutual emerging as the
surviving entity. 2 For tax purposes, MassMutual was an
accrual basis taxpayer for the relevant tax years of 1995,
1996, and 1997 and, before the merger, ConnMutual was
also an accrual basis taxpayer for the 1995 tax year.
    Mutual life insurance companies, such as MassMutu-
al, operate for the benefit of their policyholders, and do
not have a separate group of shareholders. These compa-
nies typically offer policyholders two types of insurance
plans: participating and non-participating policies. A
participating policy is an insurance policy that is eligible
to receive a portion of any distribution of the company’s
yearly surplus, while a non-participating policy is ineligi-
ble to receive such a share.
     A mutual insurance company often will conservatively
set premiums for its policyholders to ensure that the
company will have sufficient funds to pay all benefits,
even under extreme circumstances. This amount typical-
ly exceeds the funds necessary to cover the company’s
operating expenses and contractual obligations, resulting
in a surplus. At the end of each year, the company will
calculate the portion of its total surplus, known as the
divisible surplus, which it will return to the participating
policyholders in the form of policyholder dividends or a
credit towards the policyholder’s next insurance premium.
This figure is approved by the company’s board of direc-
tors when set and is then distributed to policyholders the
following year.




   2    Unless otherwise noted in the opinion, a discus-
sion of MassMutual includes both MassMutual and
ConnMutual, since the two parties merged in 1996, and
essentially were treated as the same entity by the parties
and by the Court of Federal Claims.
6                     MASSACHUSETTS MUTUAL LIFE INS    v. US



    For most participating plans, including MassMutual’s,
dividends are only payable to those policyholders whose
policies are in force as of the anniversary date of the
policy. A policy is considered in force if the premium for
the policy has been paid through its anniversary date.
     Under the Tax Code, such policyholder dividends are
deductible from a life insurance company’s gross income.
26 U.S.C. § 801(b). Specifically, Section 808(c) permits
life insurance companies to deduct these payments in “an
amount equal to the policyholder dividends paid or ac-
crued during the taxable year.” 26 U.S.C. § 808(c). In
1995, MassMutual implemented a policy of guaranteeing
a minimum amount of dividends (“guaranteed dividends”)
it would pay the following year to a defined class of eligi-
ble policyholders—those with post-1983 policies. 3 The
board of directors determined the guaranteed dividend
each year, and passed resolutions memorializing this
figure. MassMutual believed that this guarantee would
fix the expense, such that the dividend would be consid-
ered accrued for tax purposes, because so long as there
was at least one member of the defined class known by
December 31 of the taxable year, it was certain that the
entire guaranteed dividend would be paid the following
year. In other words, because the guaranteed payment
was guaranteed to an entire class of policyholders on a
pro rata basis, if even one class member was eligible for
receipt of a dividend, that class member would receive the



    3    There is a distinction between pre- and post-1983
policies, because the tax implications for pre-1983 policies
differ because of a statutory change implemented in 1984.
This change, however, does not impact the policies at
issue here. For a more detailed explanation of the tax
consequences related to pre-1983 policies, see Mass. Mut.
Life Ins. Co. v. United States, 103 Fed. Cl. at 115–16
(2012) and 26 U.S.C. § 808(f).
MASSACHUSETTS MUTUAL LIFE INS     v. US                      7



entire guaranteed amount. Because at least one such
class member could be identified by December 31 in each
year the guarantees were set, MassMutual believed its
payment liability was thus established, regardless of the
number of policyholders who might ultimately share in
that guarantee. ConnMutual adopted a similar policy in
1995.
    In light of this new policy, during the relevant tax
years of 1995, 1996, and 1997, MassMutual (and
ConnMutual for 1995) deducted from its tax refunds the
portion of the guaranteed dividend that would be paid by
September 15 of the next year in the year the dividend
was guaranteed, believing this deduction complied with
the Tax Code and Internal Revenue Service (“IRS”) regu-
lations.    See 26 U.S.C. § 461(h)(3)(A)(ii); 26 C.F.R.
§ 1.461–5(b)(ii) (“Economic performance with respect to
the liability occurs on or before the earlier of (A) [t]he date
the taxpayer files a timely . . . return for that taxable
year; or (B) [t]he 15th day of the 9th calendar month after
the close of that taxable year.”).
    For example, MassMutual claimed it could deduct
$118,975,383 from its 1995 taxes, after it determined in
late 1995 that its guaranteed dividend for 1996 would be
$185 million. To arrive at this figure, MassMutual first
calculated the dividends it expected to pay the class of
eligible policyholders, multiplied this amount by 85% to
account for the possibility that some policies might lapse,
and then determined how much of this figure, i.e., the
guaranteed dividend, would be paid by September 15,
1996. Thus, although the guaranteed dividend for 1996,
was $185 million, MassMutual only deducted
$118,975,383 from its 1995 taxes, instead of waiting to
deduct the entire guaranteed dividend from its 1996
taxes.
    For each disputed year, MassMutual disclosed to the
relevant state regulators that it would pay guaranteed
8                      MASSACHUSETTS MUTUAL LIFE INS    v. US



amounts to a class of participating policyholders, and
each year the regulators had no objections. MassMutual
did not, however, actually disclose the amount of the
guarantees to the state insurance regulators and did not
disclose the guarantee to its policyholders or its sales
force. For its guarantee in 1995, ConnMutual did disclose
the guaranteed dividend in a footnote in its annual
statement, but ConnMutual did not disclose the terms of
the guarantee or that it would apply only to post-1983
policies. Like MassMutual, ConnMutual also disclosed to
the state regulators that it would pay the guarantees and
the regulators did not object. For each of the disputed
years, the actual payment of dividends exceeded the
guaranteed dividend by several million dollars—in 1996,
the actual payment for both MassMutual and ConnMutu-
al exceeded the guaranteed amount by $37.8 million; in
1997, the actual payment exceeded the guaranteed
amount by $44.7 million; and in 1998, the actual payment
exceeded the guaranteed amount by $55.1 million.
         B. Court of Federal Claims Proceedings
     In September 2007, MassMutual filed an action in the
Court of Federal Claims on behalf of itself and ConnMu-
tual to recover funds allegedly overpaid to the IRS for the
1995, 1996, and 1997 tax years. The dispute over the
deductions arose after an IRS audit, in connection with
which the IRS proposed adjustments to MassMutual’s tax
returns for 1995, 1996, and 1997 and ConnMutual’s 1995
tax return, in part, because it found that MassMutual and
ConnMutual could not deduct any portion of the guaran-
teed dividends in the year before the dividends were paid.
These adjustments resulted in an alleged underpayment
of taxes for the relevant years. To correct the deficiencies,
MassMutual made the necessary payments under protest,
and subsequently filed a claim with the IRS for a refund
for both it and ConnMutual. At the time of its complaint,
the IRS had yet to take action on MassMutual’s claim and
had partially disallowed a refund to ConnMutual.
MASSACHUSETTS MUTUAL LIFE INS   v. US                     9



    During the proceedings, the parties did not dispute
whether MassMutual could deduct the payments, only
when any of the guaranteed dividends could be deducted.
Generally, the government believed that MassMutual
could not deduct dividends in the year the guaranteed
dividend was calculated, but instead, had to wait until the
next year, when the guaranteed dividend was actually
paid, because MassMutual had not satisfied the “all
events” test for the liability. The parties agreed that the
timing question could be resolved if the following two
issues were addressed: (1) whether, in the years they were
adopted, the resolutions to pay the guaranteed dividend
fixed MassMutual’s liability to pay the declared guaran-
teed minimum amounts in the following year; and (2)
whether MassMutual’s policyholder dividends are re-
bates, refunds, or similar payments under 26 C.F.R.
§ 1.461-4(g)(3), which qualify for the recurring item
exception under 26 C.F.R. § 1.461-5(b)(5)(ii).
    A trial was held in December 2009, and following ex-
tensive post-trial briefing, the Court of Federal Claims
issued its decision in January 2012, finding in favor of
MassMutual.
    With respect to the first issue, the government initial-
ly disputed the existence of an actual obligation to pay the
dividend. It argued that the guarantees were revocable
because the guarantees were not disclosed to the policy-
holders and were unlikely to be enforced by a regulator.
Mass. Mut. Life Ins. Co., 103 Fed. Cl. at 138. Even if such
a liability existed, the government argued that it was not
fixed, because it was contingent upon at least one policy
being in force on its anniversary date, which could only be
determined in the year when the dividend was paid.
    In dismissing the government’s arguments, the Court
of Federal Claims explained that there was no apparent
requirement that a policyholder be aware of the dividend
in order for a company to deduct the expense. Id. Fur-
10                    MASSACHUSETTS MUTUAL LIFE INS    v. US



ther, there was nothing to suggest that an expense must
be irrevocable to accrue as a liability. Id. at 139. Addi-
tionally, in this case, MassMutual had informed state
regulators of these dividends, the state regulators ap-
proved the dividends, and there was evidence that the
regulators had authority to enforce the dividend guaran-
tees if that were necessary. Even if state regulators could
not have enforced the dividend guarantees, the Court of
Federal Claims found that this did not prevent MassMu-
tual from establishing the fact of liability because a
liability need not be legally enforceable to be fixed under
the “all events” test. Id. at 140.
    As to whether the dividends were contingent upon an
event that must occur before the duty to pay a dividend
arises, the Court of Federal Claims found that there was a
group of policyholders who were already eligible to receive
dividends in each year during which the guaranteed
dividends were determined, because these individuals had
paid their premiums through the next anniversary. Id. at
135. Because only the passage of time stood between the
guarantees and the receipt of a dividend by these individ-
uals, the liability was fixed at the time the guaranteed
dividends were approved by the board of directors. While
the government alleged that this finding was not disposi-
tive because MassMutual’s typical practice was to pay a
dividend only if the policyholders had paid premiums for
the two previous policy years, the court found this argu-
ment to be unsupported by the evidence. Because it was
clear from the record that the lapse rates for policies were
low, the Court of Federal Claims determined that it was
unlikely the one year policies relied upon would have
lapsed and thus been ineligible for dividends. Id. at 135–
36.
    Furthermore, the Court of Federal Claims noted that
there was also a small group of existing policies where the
premiums were no longer due—so called paid-up policies.
Id. at 136. These paid-up policies were certain to receive
MASSACHUSETTS MUTUAL LIFE INS   v. US                   11



a dividend, because there was no risk that these policies
would lapse as the policyholders never had to pay another
premium on their policies.       Thus, MassMutual was
already obligated to pay these policyholders. Accordingly,
the Court of Federal Claims concluded that the liability
was fixed.
    With respect to the second question, the parties
agreed that rebates and refunds satisfy the matching
requirement, but disputed whether MassMutual’s guar-
anteed dividends qualified as rebates or refunds. Because
there was no general definition for the term rebate or
refund in the Tax Code or the applicable Treasury Regu-
lations, the Court of Federal Claims considered the ordi-
nary meaning of the terms, industry usage, dictionary
definitions, and testimony presented at trial, in order to
determine if the disputed guarantees were rebates or
refunds. Id. at 155–166. In light of this evidence, it
concluded that the dividends were a return of premiums
paid by the policyholders, and, thus, should be treated as
rebates or refunds. Id. at 166. Accordingly, the Court of
Federal Claims held that MassMutual’s deductions quali-
fied under the recurring item exception, because its
dividends satisfied the matching requirement.
    Lastly, the government alleged that the guarantees
lacked economic substance because there was no non-tax
business purpose for setting them. The Court of Federal
Claims rejected this contention, explaining that the
purpose of the economic substance doctrine is to prevent
taxpayers from taking improper deductions, which was
not the case here. Id. at 170. Because the dispute was
only with respect to the timing of the deduction, the Court
of Federal Claims concluded that the typical economic
substance analysis was inapplicable in this case, and that
there was no other reason to preclude MassMutual from
deducting the guaranteed dividends in the years in which
they were calculated. Id. at 173.
12                    MASSACHUSETTS MUTUAL LIFE INS   v. US



     Because MassMutual’s deductions were fixed in the
year the dividends were determined and the guaranteed
dividends were rebates, the Court of Federal Claims
concluded that MassMutual was entitled to a refund for
its and ConnMutual’s overpayment of taxes in 1995, 1996,
and 1997. Id. at 173–74.
    The government timely appealed this decision. The
court has jurisdiction to review the Court of Federal
Claims’ final judgment under 28 U.S.C. § 1295(a)(3).
                       DISCUSSION
    Whether a taxpayer has satisfied the “all events” test
is a question of law that we review de novo. See In re
Harvard Indus., Inc., 568 F.3d 444, 450 (3d Cir. 2009);
United States v. O’Cheskey, 310 F. App’x 726, 734 (5th
Cir. 2009); Interex, Inc. v. Comm’r, 321 F.3d 55, 58 (1st
Cir. 2003); Gold Coast Hotel & Casino v. United States,
158 F.3d 484, 487 (9th Cir. 1998). The interpretation of a
regulation is also a question of law that is reviewed de
novo. Gose v. U.S. Postal Serv., 451 F.3d 831, 836 (Fed.
Cir. 2006); see also Am. Express Co. v. United States, 262
F.3d 1376, 1382–83 (Fed. Cir. 2001). Any fact finding by
the Court of Federal Claims is sustained unless it is
clearly erroneous. AT&T Co. v. United States, 307 F.3d
1374, 1377 (Fed. Cir. 2002). “A finding is ‘clearly errone-
ous’ when although there is evidence to support it, the
reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been
committed.” United States v. U.S. Gypsum Co., 333 U.S.
364, 395 (1948).
    On appeal, the government again challenges the tim-
ing of the deductions, claiming that the guaranteed divi-
dends were not fixed in the year that the dividends were
set by the board, and that these payments were not
rebates. It does not contest the Court of Federal Claims’
ruling regarding the economic substance of the deduction.
MASSACHUSETTS MUTUAL LIFE INS   v. US                    13



                A. Existence of Obligations
    As an initial matter, the government again contests
whether the dividend guarantees give rise to true obliga-
tions that can be deducted. If there is no obligation, it is
irrelevant whether such an obligation is fixed.
    The government alleges that MassMutual’s disclo-
sures to state regulators do not change the reality that
these promises were revocable, because MassMutual
never informed the policyholders of these dividends. To
support its position, the government relies on New York
Life Insurance Co. v. United States, which also addressed
the timing of participating policyholder dividend deduc-
tions. 724 F.3d 256 (2d Cir. 2013).
    There, New York Life Insurance Company (“New York
Life”) argued that it could deduct two types of dividends,
annual dividends and minimum liability dividends, both
of which it considered accrued in the tax year before the
dividends were actually paid. Id. at 257. Regarding the
annual dividends, New York Life’s practice was to credit
an individual policyholder’s account before, but no more
than thirty days before, the policy’s anniversary date. Id.
at 259. This credit would be generated if a “policyholder
had paid all the premiums necessary to keep the policy in
force through its anniversary date. New York Life did not
actually pay the dividend, however, until the ‘the Credited
Policy’s anniversary date.’” Id. Because the credit date
for January policies fell within the prior year, New York
Life deducted these credits in the year before the dividend
was paid.
    New York Life’s minimum liability dividend arose
from its decision to also offer termination dividends,
which are dividends paid to a policyholder when he or she
ends a policy. New York Life understood that it could
hypothetically pay an annual dividend, a termination
dividend, or both an annual dividend and a termination
dividend, to an individual policyholder in one year. New
14                    MASSACHUSETTS MUTUAL LIFE INS    v. US



York Life then calculated the annual dividends and
termination dividends that it anticipated it would pay in
the following year. Surmising that it would pay at least
the lesser of the annual or termination dividend to eligible
policyholders, New York Life deducted the lesser amount
in the tax year before any dividend was paid.
    Upon review, the Second Circuit disagreed with New
York Life’s practices, finding that such deductions were
improper because they failed to meet the “all events” test.
For the annual dividends, the Second Circuit determined
that the obligation to pay the annual dividends depended
upon the individual policyholder retaining his or her
policy through the policy’s anniversary date. Id. at 263.
Because the decision to maintain the policy through the
anniversary date would not occur before the close of the
prior tax year, New York Life’s obligation to pay the
annual dividend could not accrue when the individual
policyholder accounts were credited the year before.
Additionally, the Second Circuit concluded that there was
no basis for New York Life’s minimum liability dividend
deduction, because New York Life was under no obliga-
tion to pay the termination dividend when a policyholder
ended his or her policy. Id. at 266. Without an actual
requirement to pay these dividends, the Second Circuit
concluded it was irrelevant that New York Life’s board of
directors passed an “irrevocable” board resolution approv-
ing such a payment, since “a board’s resolution cannot
convert a voluntary expense into an accrued liability for
federal income tax purposes.” Id. at 267. Accordingly, the
Second Circuit concluded New York Life’s deductions
were improper.
    The government’s argument is largely premised on
the idea that MassMutual had no obligation to pay its
eligible policyholders a dividend, absent its board of
directors’ resolution to pay a dividend, which was the case
in New York Life with respect to the termination divi-
dends. Unlike New York Life, however, the policies at
MASSACHUSETTS MUTUAL LIFE INS    v. US                     15



issue here stated that MassMutual and ConnMutual
would pay dividends to eligible policyholders. Mass.
Mutual Life Ins. Co., 103 Fed. Cl. at 114 (“A sample
MassMutual participating policy, included as a Joint
Exhibit, stated: ‘Each year we determine how much
money can be paid as dividends. This is called divisible
surplus. We then determine how much of this divisible
surplus is to be allocated to this [participating] policy.’”);
see also Joint Appendix 139 (“While this [ConnMutual]
Policy is in force, except as extended term insurance, we
will credit it with dividends. Dividends are based on such
shares of the divisible surplus (if any) as we may appor-
tion at the end of each Policy Year.”). While MassMutual
and ConnMutual ultimately would determine the portion
of the guarantee eligible policyholders would receive
based on the size of the surplus and the number of policy-
holders who were eligible for the payments, policyholders
had a contractual expectation nonetheless that they
would receive a policyholder dividend. For these reasons,
we find the government’s assertion that New York Life
forecloses a finding that the disputed guarantees are
actual obligations unpersuasive.
    The government also alleges that MassMutual’s dis-
closure of the dividend guarantees to state regulators was
merely an empty gesture. Because some dividend was
virtually guaranteed each year, it contends that the
disclosure to the regulators of a guaranteed dividend was
meaningless. The government neglects to discuss the
evidence on the record that the state regulators did have
the authority to enforce MassMutual’s guarantees. Ab-
sent an argument that this finding was clear error, the
court will not disturb the Court of Federal Claims’ deter-
mination that the government’s enforceability concerns
did not prevent the guaranteed dividends from being fixed
in the year in which MassMutual calculated the guaran-
teed dividends.
16                     MASSACHUSETTS MUTUAL LIFE INS     v. US



                  B. Fixation of Liability
     The government also argues that MassMutual can on-
ly deduct the guaranteed dividend in the tax year in
which the dividends were paid and cannot deduct them in
the year the guaranteed dividend was determined, be-
cause a condition precedent to the payment guarantee—
i.e., that the policies remain in force as of the anniversary
date—may not be satisfied. It correctly explains that the
“all events” test, in part, requires that a liability first be
firmly established, because one cannot deduct a liability
that is contingent or contested. See Gen. Dynamics, 481
U.S. at 243–44 (“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 close of the taxable year.”); United States v. Hughes
Properties, Inc., 476 U.S. 593, 600 (1986) (“[T]he Court’s
cases have emphasized that ‘a liability does not accrue as
long as it remains contingent.’”) (quoting Brown v. Helver-
ing, 291 U.S. 193, 200 (1934)). The government’s asser-
tion that MassMutual’s obligation to pay the guaranteed
dividends is contingent on an event that cannot be deter-
mined until the year the dividends are paid is factually
incorrect, however.
    The government’s argument concerns the requirement
that a policy still be in force before a dividend is paid to a
policyholder. Because it is unknown whether a policy-
holder will surrender his or her policy before its anniver-
sary date, the government contends that the obligation to
pay the dividend is contingent upon an event that would
not occur until the next year, and is therefore not fixed.
Again, the government cites heavily to New York Life to
bolster its contention. The government’s reliance on New
York Life is misplaced.
    While the present case is similar to New York Life in
the sense that both cases involve policyholder dividend
deductions, the facts of this case dictate a different out-
MASSACHUSETTS MUTUAL LIFE INS   v. US                    17



come than the one reached in New York Life. In guaran-
teeing a certain amount of dividends each year for its
policyholders, MassMutual promised an entire class of
policyholders that they would be entitled to the guaran-
teed payments on a pro rata basis. On the other hand,
New York Life made such guarantees on an individual
basis. See New York Life, 724 F.3d at 259 (explaining
that the company’s practice was to credit an individual
policyholder’s account with the dividend before the poli-
cy’s anniversary date and deduct these credits from its
gross income, before the dividends were actually paid to
policyholders in the following year). While the govern-
ment attempts to equate the two fact patterns, the differ-
ence between the two is significant.
    Only in one instance will an individual policyholder’s
choice to end the insurance policy early affect the compa-
ny’s obligation to pay the dividend—the case presented in
New York Life. Because MassMutual guaranteed the
dividend to a class of policyholders, an individual’s deci-
sion to terminate his or her policy does not affect Mass-
Mutual’s obligation to pay a dividend to the remaining
members of the class of policyholders. Rather, it affects
only how much MassMutual would pay the remaining
members of the class. So long as there is at least one
member of the class remaining, the guaranteed dividend
would be paid. At the end of each disputed taxable year,
there were thousands of paid-up post-1983 policies with
no risk of lapse, thus MassMutual was obligated to pay at
least this group of policyholders. And by its declaration to
pay a guaranteed dividend to the class of eligible policy-
holders, MassMutual was obligated to pay at least this
group the guaranteed amount.
    While the composition of the class could change
throughout the year, this does not change the outcome of
this case, because not knowing the ultimate recipient of
the payment does not prevent a liability from becoming
fixed. Hughes Properties, 476 U.S. at 601; Wash. Post Co.
18                     MASSACHUSETTS MUTUAL LIFE INS     v. US



v. United States, 405 F.2d 1279, 1284 (Ct. Cl. 1969) (ex-
plaining that “when a ‘group liability’ is involved, it is the
certainty of the liability which is of utmost importance . . .
and not necessarily . . . the identity of the payees.”). So
long as an obligation is not subject to some event that
must occur for a liability to become due, then the liability
is considered fixed. Gen. Dynamics, 481 U.S. at 244. In
this case, the only uncertainty at the end of the year in
which the guarantees were determined was who would
ultimately make up the group of policyholders—there was
no question that MassMutual had passed an absolute
resolution to pay the guaranteed dividend and that at
least some policyholders were already qualified recipients
of that guarantee. Accordingly, the liability to pay the
guaranteed dividend became fixed in the year in which
the board of directors adopted the guaranteed dividend
resolutions and at least some number of policyholders had
paid-up premiums for their policies, facts which the Court
of Federal Claims determined existed for each of the tax
years in question.
                  C. Definition of Rebate
    The government also argues that the Court of Federal
Claims erred in finding that MassMutual’s guaranteed
dividends were rebates. Specifically, the government
alleges that the IRS’s interpretation that these types of
payments are not rebates is controlling and should be
given deference. Even without deference, the government
alleges that the IRS’s interpretation of Treasury Regula-
tion § 1.461-4(g)(3) should prevail in light of the surround-
ing language of the regulation, and the legislative and
regulatory history.
    When construing a regulation, the court applies the
same interpretative rules it uses when analyzing the
language of a statute. See Tesoro Haw. Corp. v. United
States, 405 F.3d 1339, 1346 (Fed. Cir. 2005) (“We construe
a regulation in the same manner as we construe a stat-
MASSACHUSETTS MUTUAL LIFE INS     v. US                     19



ute . . . .”). Accordingly, it is appropriate to first consider
the “plain language [of the regulation] and consider the
terms in accordance with their common meaning.” Lock-
heed Corp. v. Widnall, 113 F.3d 1225, 1227 (Fed. Cir.
1997). In doing so, the court considers “the text of the
regulation as a whole, reconciling the section in question
with sections related to it.” Lengerich v. Dep’t of Interior,
454 F.3d 1367, 1370 (Fed. Cir. 2006) (citing Reflectone,
Inc. v. Dalton, 60 F.3d 1572, 1577–78 (Fed. Cir. 1995)). If
the regulatory language is clear and unambiguous, then
no further inquiry is usually required. Roberto v. Dep’t of
the Navy, 440 F.3d 1341, 1350 (Fed. Cir. 2006).
    If the language is ambiguous, then the court must
typically defer to the agency’s interpretation of the regu-
lation. Auer v. Robbins, 519 U.S. 452, 461–62 (1997);
Gose, 451 F.3d at 836 (“As a general rule, we must defer
to an agency’s interpretations of the regulations it prom-
ulgates, as long as the regulation is ambiguous and the
agency’s interpretation is neither plainly erroneous nor
inconsistent with the regulation.”) (citing Gonzales v.
Oregon, 126 S. Ct. 904, 914 (2006) (“An administrative
rule may receive substantial deference if it interprets the
issuing agency’s own ambiguous regulation.”)); see also
Christensen v. Harris Cnty., 529 U.S. 576, 588 (2000) (“In
Auer, we held that an agency’s interpretation of its own
regulation is entitled to deference. But Auer deference is
warranted only when the language of the regulation is
ambiguous.”) (citations omitted). Deference can even be
afforded to an agency’s interpretation when that interpre-
tation is advanced in a legal brief. See Chase Bank USA,
N.A. v. McCoy, 131 S. Ct. 871, 881 (2011) (explaining that
the deference granted in Auer was to an agency’s inter-
pretation that was presented in an amicus brief submit-
ted by the agency at the Supreme Court’s invitation).
    But such deference is not always afforded to an agen-
cy’s interpretation of its own regulation. “Deference is
undoubtedly inappropriate, for example, when the agen-
20                     MASSACHUSETTS MUTUAL LIFE INS   v. US



cy’s interpretation is ‘plainly erroneous or inconsistent
with the regulation.’” Christopher v. SmithKline Beecham
Corp., 132 S. Ct. 2156, 2166 (2012) (quoting Auer, 591
U.S. at 461). It is also unwarranted when there is “reason
to suspect that the interpretation does not reflect the
agency’s fair and considered judgment on the matter in
question.” Auer, 519 U.S. at 462. Such a reason exists
“when the agency’s interpretation conflicts with a prior
interpretation, or when it appears that the interpretation
is nothing more than a convenient litigating position, or a
post hoc rationalization advanced by an agency seeking to
defend past agency action against attack.” Christopher,
132 S. Ct. at 2166–67 (quotations and citations omitted).
     1. Interpretation of “Rebates, Refunds, and Similar
                          Payments”
    When deciding how to construe the terms “rebate, re-
fund, and similar payments” in Treasury Regulation
§ 1.461-4(g)(3), the Court of Federal Claims determined
that there was no general definition for the term rebate or
refund in the Treasury Regulations; rather, the only
definitions in the regulations for rebates and refunds were
for very specific contexts, not at issue in this case. Be-
cause “neither the Tax Code nor the Treasury Regulations
provide a specific definition for rebate or refund applica-
ble to this case,” the Court of Federal Claims decided to
apply basic statutory interpretation principles, including
reliance on dictionary definitions, to determine the correct
interpretation of refunds and rebates in the context of
Treasury Regulation § 1.461-4(g)(3). Mass Mut. Life Ins.
Co., 103 Fed. Cl. at 155. It ultimately concluded that
MassMutual’s policyholder dividend payments qualified
as rebates, refunds, or similar payments. Id. at 166.
    As previously discussed, the matching requirement of
Treasury Regulation § 1.461-5(b)(5)(ii) can be satisfied by
rebates or refunds as described in Treasury Regulation
§ 1.461-4(g)(3), which states:
MASSACHUSETTS MUTUAL LIFE INS    v. US                       21



    (3) Rebates and refunds. If the liability of a tax-
    payer is to pay a rebate, refund, or similar pay-
    ment to another person (whether paid in property,
    money, or as a reduction in the price of goods or
    services to be provided in the future by the tax-
    payer), economic performance occurs as payment
    is made to the person to which the liability is
    owed. This paragraph (g)(3) applies to all rebates,
    refunds, and payments or transfers in the nature
    of a rebate or refund regardless of whether they
    are characterized as a deduction from gross in-
    come, an adjustment to gross receipts or total
    sales, or an adjustment or addition to cost of goods
    sold. In the case of a rebate or refund made as a
    reduction in the price of goods or services to be
    provided in the future by the taxpayer, “payment”
    is deemed to occur as the taxpayer would other-
    wise be required to recognize income resulting
    from a disposition at an unreduced price. See Ex-
    ample 2 of paragraph (g)(8) of this section. For
    purposes of determining whether the recurring
    item exception of § 1.461-5 applies, a liability that
    arises out of a tort, breach of contract, or violation
    of law is not considered a rebate or refund.
26 C.F.R. § 1.461-4(g)(3).
    The Treasury Regulations provide no applicable defi-
nition for the terms “rebate, refund, or similar payment.”
When terms are undefined, the court may consider the
definitions of those terms in order to determine their
meaning. See Xianli Zhang v. United States, 640 F.3d
1358, 1364 (Fed. Cir. 2011) (“Dictionary definitions can
elucidate the ordinary meaning of statutory terms.”); Am.
Express Co., 262 F.3d at 1381 n.5 (“It is appropriate to
consult dictionaries to discern the ordinary meaning of a
term not explicitly defined by statute or regulation.”).
22                    MASSACHUSETTS MUTUAL LIFE INS    v. US



    At the time the disputed regulation was adopted in
1992, Black’s Law Dictionary defined the term “rebate” as
a “[d]iscount; deduction or refund of money in considera-
tion of prompt payment. A deduction from a stipulated
premium on a policy of insurance, in pursuance of an
antecedent contract. A deduction or drawback from a
stipulated payment, charge, or rate . . . not taken out in
advance of payment, but handed back to the payer after
he has paid the full stipulated sum . . . .” BLACK’S LAW
DICTIONARY 1266 (6th ed. 1990). It also defined “refund”
as “[t]o repay or restore; to return money in restitution or
repayment; e.g. to refund overpaid taxes; to refund pur-
chase prices of returned goods.” Id. at 1281.
     Reviewing these definitions, it is clear that the term
rebate encompasses a return of a portion of the original
life insurance premium to a policyholder in the form of a
policyholder dividend, also known as a premium adjust-
ment. The IRS Code itself supports such an interpreta-
tion, by defining “premium adjustment” in the context of
insurance as “any reduction in the premium under an
insurance or annuity contract which (but for the reduc-
tion) would have been required to be paid under the
contract.” 26 U.S.C. § 808(d). Additionally, this construc-
tion comports with this court’s own understanding of
policyholder dividends. See John Hancock Servs., Inc. v.
United States, 378 F.3d 1302, 1303 (Fed. Cir. 2004) (“Poli-
cyholder dividends are price rebates that the company can
deduct from its taxable earnings.”); Principal Mut. Life
Ins. Co. v. United States, 295 F.3d 1241, 1242 (Fed. Cir.
2002) (“Mutual life insurance companies give premium
rebates to their policyholders.”); CUNA Mut. Life Ins. Co.
v. United States, 169 F.3d 737, 738 (Fed. Cir. 1999) (“Life
insurance companies traditionally rebate to their policy
holders, as excessive charges, part of the premiums paid
and deduct these payments from their income.”).
   The government argues, nevertheless, that the sur-
rounding language in § 1.461-4(g) and in the related
MASSACHUSETTS MUTUAL LIFE INS   v. US                     23



Treasury Regulation § 1.461-4, which describes the recur-
ring item exception, do not support this interpretation.
Reflectone, 60 F.3d at 1577–78 (citing Beecham v. United
States, 511 U.S. 368, 372 (1994) (“The plain meaning that
we seek to discern is the plain meaning of the whole
statute, not of isolated sentences.”)). For example, the
government cites to language in § 1.461-4(g) that explains
a rebate or refund can be “an adjustment to gross receipts
or total sales,” “an adjustment or addition to cost of goods
sold,” or “a reduction in the price of goods or service to be
provided in the future by the taxpayer.” It contends that
such language is inapplicable in this case. But contrary
to the government’s argument, this language actually
supports the conclusion that a premium adjustment—an
adjustment to the initial cost of insurance—is a rebate.
     The government also cites to § 1.461-4(g)(5), which
discusses insurance, warranty, and service contracts, to
support its conclusion that policyholder dividends are not
rebates. Treasury Regulation § 1.461-4(g)(5) states that
“[i]f the liability of a taxpayer arises out of the provision
to the taxpayer of insurance, or a warranty or service
contract, economic performance occurs as payment is
made to the person to which the liability is owed.” Be-
cause this section refers explicitly to insurance, the gov-
ernment contends that, if refunds and rebates were to
cover policyholder dividends, there would likewise be a
specific reference to such dividends in § 1.461-4(g)(3).
What the government neglects to mention is that there
are no specific references made to the types of refunds
included in § 1.461-4(g)(3); the failure to include a partic-
ular reference to policyholder dividends, thus, is not
surprising. There is nothing in the regulations the gov-
ernment references that conflicts with the construction of
rebate adopted by the Court of Federal Claims.
    Additionally, the government asserts that its inter-
pretation is supported by both legislative and regulatory
history, because there was no mention of policyholder
24                     MASSACHUSETTS MUTUAL LIFE INS    v. US



dividends as rebates in either the discussion of the statute
which statutorily established the economic performance
requirement, the Deficit Reduction Act of 1984, or the IRS
regulations related to that act. While the government is
correct that policyholder dividends are not referenced in
the House Conference Report on the Deficit Reduction Act
of 1984 or by the IRS, only one type of rebate or refund is
ever referenced with specificity—utility refunds, which
are given to natural gas utilities when they have been
overcharged by their suppliers. See H.R. Conf. Rep. No.
98-861, at 876 (1984) (discussing that with the changes to
26 U.S.C. 461(h) requiring economic performance, com-
mentators argued that the statute should be interpreted
to allow “a utility [to] deduct [natural gas supplier] re-
funds in the year the refund was included in the income of
the utility, provided that the refunds are passed through
to consumers within a reasonable period of time in the
following taxable year”); 57 Fed. Reg. 12411, 12416, T.D.
8408 (Apr. 9, 1992) (noting that “the final regulations
[relating to the economic performance requirement did]
not provide any special rules for natural gas suppliers or
other public utilities”). The discussion of one very specific
type of refund does not create an inference that policy-
holder dividends in the form of premium adjustments
should not be considered “rebates, refunds, or similar
payments,” especially when adopting such a construction
would conflict with the plain and ordinary meaning of the
contested terms.
    Here, the plain and ordinary meaning of the terms re-
bate and refund include premium adjustments distributed
to policyholders in the form of dividends. While the
government also complains that the Court of Federal
Claims’ analysis is flawed for giving undue weight to
industry usage, and ignoring the actual nature of policy-
holder dividends, which could be also seen as a return of
equity and not merely a price rebate, on the record before
us, we find these arguments unpersuasive. The Court of
MASSACHUSETTS MUTUAL LIFE INS   v. US                   25



Federal Claims thoroughly considered these questions
and we see no error in the manner in which it did so. The
government’s final argument is that the IRS’s interpreta-
tion of the regulation should be afforded deference.
Because the terms are unambiguous, the court need not
consider whether it should defer to the IRS’s interpreta-
tion of the regulation. Even if we were to conclude that
the regulation is ambiguous, moreover, for the reasons
explained below, we decline to afford deference to the
IRS’s interpretation in this case.
        2. Deference to the IRS’s interpretation of
                      § 1.461-4(g)(3)
    The court first notes that the government did not pre-
sent a deference argument to the Court of Federal Claims.
As a general principle, appellate courts do not consider
issues that were not clearly raised in the proceeding
below. Hormel v. Helvering, 312 U.S. 552, 556 (1941); see
San Carlos Apache Tribe v. United States, 639 F.3d 1346,
1354–55 (Fed. Cir. 2011) (“Because the [litigant] did not
raise this argument before the Court of Federal Claims, it
is waived on appeal.”). “Only rarely will an appellate
court entertain” a novel argument raised for the first time
on appeal. Karuck Tribe of Cal. v. Ammon, 209 F.3d
1366, 1379 (Fed. Cir. 2000); see Singleton v. Wulff, 428
U.S. 106, 121 (1976) (“The matter of what questions may
be taken up and resolved for the first time on appeal is
one left primarily to the discretion of the courts of ap-
peals, to be exercised on the facts of individual cases.”).
    While the government argues that the doctrine of
waiver is inapplicable here because the Court of Federal
Claims raised the deference issue sua sponte in its opin-
ion, the government mischaracterizes the court’s discus-
sion of deference. In considering how to define rebates
and refunds, the Court of Federal Claims first considered
whether 26 U.S.C. § 461(h)(3), the statute which discusses
the recurring item exception, explained what type of
26                    MASSACHUSETTS MUTUAL LIFE INS   v. US



transactions met the exception. In finding it did not, the
Court of Federal Claims next considered if Treasury
Regulation § 1.461-5, which address the matching re-
quirement of §461(h)(3), was a reasonable and consistent
interpretation of the statute. If the regulation was con-
sistent with the aim of the statute, then the court could
rely upon it in determining if policyholder dividends
satisfied the matching requirement. Mass Mut. Ins. Co.,
103 Fed. Cl. at 151 (“Treasury regulations are entitled to
great deference, and must be sustained unless unreason-
able and plainly inconsistent with the revenue statutes.”
(quoting CUNA Mut. Life Ins. Co., 169 F.3d at 742)). The
Court of Federal Claims never discussed whether the
IRS’s interpretation of Treasury Regulation § 1.461-4(g)(3)
was entitled to deference; it only considered whether the
IRS’s statutory interpretation was reasonable. According-
ly, the court will not excuse the government’s failure to
raise the Auer deference argument below.
    Assuming arguendo that the government did not
waive its deference argument, deference would not be
warranted here. The government asserts that the IRS’s
interpretation of Treasury Regulation § 1.461-4(g)(3) to
exclude policyholder dividends as rebates or refunds—
which was advanced for the first time in this litigation—
should be afforded deference. It cites to two IRS Field
Service Advisories to support its contentions that the IRS
has considered the question carefully, and that its ulti-
mate interpretation “reflect[s] the agency’s fair and
considered judgment on the matter in question,” and was
not merely created for litigation purposes. Auer, 519 U.S.
at 462.
    The two IRS Field Service Advisories cited by the gov-
ernment do not take any position as to how policyholder
dividend liabilities should be classified, however. See IRS
Field Service Advisory, 1994 WL 1865978 (Apr. 28, 1994)
(“Given that, in theory, policyholder dividends may repre-
sent in part a return on equity and in part a price ad-
MASSACHUSETTS MUTUAL LIFE INS    v. US                     27



justment, we believe that the policyholder dividend liabil-
ities at issue are appropriately classified as § 1.461-4(g)(7)
‘other liabilities,’ § 1.461-4(g)(3) ‘rebates and refunds,’ or
some combination of the two.”); IRS Field Service Adviso-
ry, 1998 WL 1984267 (Aug. 24, 1998) (“Although we
believe it is possible to characterize the liability to pay
policyholder dividends either as a rebate or as an ‘other’
liability, we characterize the liability as a rebate for
purposes of this advice.”). “While agency positions articu-
lated in litigation briefs may be entitled to deference, such
deference is earned only if the brief represents the agen-
cy’s considered position and not merely the views of
litigating counsel.” Abbott Labs. v. United States, 573
F.3d 1327, 1333 (Fed. Cir. 2009) (emphasis added).
    In this case, there is no evidence that the IRS’s pre-
sent interpretation reflects such contemplation. Am.
Signature, Inc. v. United States, 598 F.3d 816, 827 (Fed.
Cir. 2010) (“Where the agency’s interpretation seeks to
advance its litigating position, deference is typically not
afforded to the agency’s position announced in a brief.
But, where the agency is not advancing its litigating
position, deference may be afforded [to] an agency’s
position articulated in its brief.”) (citation omitted); com-
pare Adair v. United States, 497 F.3d 1244, 1252 (Fed.
Cir. 2007) (declining to afford deference to OPM’s regula-
tory interpretation in part because there was no indica-
tion that the opinion had been circulated through OPM),
and Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212
(1988) (“[W]e have declined to give deference to an agency
counsel’s interpretation of a statute where the agency
itself has articulated no position on the question . . . .”),
with Long Island Care at Home, Ltd. v. Coke, 551 U.S.
158, 163–64, 171 (2007) (explaining there was no reason
to suspect the agency’s interpretation did not reflect its
fair and considered judgment because it had considered
revising its interpretation at least three times over the
course of 15 years but had declined to make a change).
28                     MASSACHUSETTS MUTUAL LIFE INS     v. US



Without any other evidence that the IRS had thoughtfully
considered its position, “[t]o defer to the agency’s interpre-
tation in this circumstance would seriously undermine the
principle that agencies should provide regulated parties
‘fair warning of the conduct [a regulation] prohibits or
requires.’” Christopher, 132 S. Ct. at 2167 (quoting Gates
& Fox Co. v. Occupational Safety & Health Review
Comm’n, 790 F.2d 154, 156 (D.C. Cir. 1986) (Scalia, J.)).
Accordingly, if the court had found the regulatory lan-
guage ambiguous, the IRS’s interpretation of § 1.461-
4(g)(3) to exclude policyholder dividends still would not
have been entitled to deference.
                D. MassMutual’s Dividends
     The last remaining question is whether MassMutual’s
disputed dividends were premium adjustments and not a
distribution of profits. See 26 U.S.C. § 808(b) (“[T]he term
‘policyholder dividend’ includes—(1) any amount paid or
credited . . . where the amount is not fixed in the contract
but depends on the experience of the company or the
discretion of the management, (2) excess interest, (3)
premium adjustments, and (4) experience-rated refunds.”)
In concluding that MassMutual’s policyholder dividends
qualified as a refund or rebate, the Court of Federal
Claims cited evidence that the company itself considered
these dividends as a return of a portion of the premium
and the fact that none of MassMutual’s policyholder
dividend deductions were treated as a return of equity by
the IRS under 26 U.S.C. § 809. 4 In the absence of any
evidence that the dividends in question were in fact a
return of equity, there is no reason to disturb the Court of


     4  This section of the Tax Code, since repealed by the
Pension Funding Equity Act of 2004, established a statu-
tory scheme “for calculating the portion of the policyhold-
er dividends that a mutual company could deduct.” John
Hancock Servs., 378 F.3d at 1303.
MASSACHUSETTS MUTUAL LIFE INS   v. US                 29



Federal Claims’ factual finding that these dividends were
“in the nature of the price rebates.” Mass Mut. Life Ins.
Co., 103 Fed. Cl. at 163.
                      CONCLUSION
     Accordingly, we affirm the Court of Federal Claims’
finding that MassMutual’s claimed deductions relating to
its guaranteed dividends for the 1995, 1996, and 1997 tax
years, and ConnMutual’s claimed deduction relating to its
guaranteed dividend for the 1995 tax year, are allowable.
                      AFFIRMED
