Very good analysis and explanation, Joker365.
If that is the result, it is going to be interesting if that holds up through the remainder of the process.
It would be nice if the court had better detailed that issue and officially held for the Petitioner on it, instead of everyone needing to back into it.
The court held that the direct purchases of money orders with the Amex Blue card generated taxable income on the rewards at the Magical Rite Aid because the money orders did not constitute a purchase of a good (which is consistent with your argument that there is no sale/exchange when VGCs are used to buy money orders). That holding was the reason it was reported as a win for the IRS, but we don't know how big the Rite Aid transactions were.
The IRS may have thought the judge would extend the same taxable treatment to the Amex Blue to VGSs to money orders transactions (without the IRS needing to argue for a modification to the Rebate Rule, or sale/exchange treatment, for those transactions), since it is likely that every F'ing one of the VGCs were used for either money order purchases or Credit Card Billpays at WalMart. But if the court declined to extend that same taxable treatment when VGCs were used as the intermediary step, that is a huge win for the taxpayers in the case. So maybe their attorney is justified in thumping his chest.
That would mean they earned a lot of nontaxable cash. Since it is a transaction that will never likely reoccur, hopefully there will be no changes in policy from the IRS because of it. There will never be another unlimited Amex Blue card, or another Dollar Coin opportunity.