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Charley v. Commissioner

United States Court of Appeals for the Ninth Circuit
91 F.3d 72 (1996)

Charley v. Commissioner


Philip Charley (defendant) served as President of Truesdail Laboratories (Truesdail). Charley frequently traveled for business and accrued many frequent flyer miles. At the time, Truesdail had an unwritten policy that any frequent flyer miles accrued during business travel were the personal property of the employees who accrued them. Throughout 1998, Charley took four business trips. Each time, Truesdail paid its travel agent funds to obtain first class airfare for Charley. But rather than purchasing a first class ticket, Charley instructed the agent to purchase a coach ticket with the funds. Charley would then upgrade the ticket to first class using his frequent flyer miles. The remainder of the original funds from Truesdail (the difference between a first class ticket and a coach ticket) was deposited into Charley’s personal travel account. In this manner, Charley “sold” his frequent flyer miles to Truesdail and received cash in exchange. By the end of the year, Charley had $3,149.93 deposited into his personal travel account. He did not report the amount on his tax return. The Tax Court ruled that the frequent flyer miles were taxable income.

Rule of Law


Holding and Reasoning (Farris, J.)

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Questions & Answers

Would the FF miles still be considered compensation for services (and thus taxable gross income) if they hadn't have been used?

Since he effectively "sold" his FF miles for cash and this was considered taxable bc compensation for services, and considering compensation for services can be in other forms other than cash, wouldn't the FF miles by themselves also be considered compensation for services? Also, wouldn't the original travel credit also have been considered compensation for services?

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