This taxpayer should have gone to a refund forum (District Court or Court of Federal Claims), not to the Tax Court. The aforementioned courts would (IMHO) have been more likely to hold the IRS to its published "rebate rule" position, rather than making up new law, viz., a "cash equivalent exception." Taxpayer would have had to front the cash, but chances of prevailing would have increased significantly. I think they got bad legal advice.