Wade v. Commissioner

Nathan Wade (plaintiff) owned a Subaru dealership in Salt Lake City, Utah. The regional Subaru distributor contracted with local Salt Lake City television stations for advertising time. The television stations offered incentives, including all-expense-paid international trips, to increase customers’ advertising purchases from the stations. The television stations negotiated the costs of the trips with travel agencies and received the trips at discounted rates. In 1983, 1984, and 1985, the Subaru distributor purchased enough advertising time to receive several trip awards from the station. The Subaru distributor then passed on the trip awards to local dealerships in the Salt Lake City area based on the dealers’ annual sales of Subaru vehicles. Between 1983 and 1985, Wade’s dealership sold enough Subaru vehicles to earn Wade five trip awards of two tickets each to Mexico, Greece, Monte Carlo, France, and Israel. Wade and his wife traveled with other trip-award recipients to the destinations. On three of the trips, the Wades were joined by their friends, who had purchased tickets from trip-award recipients who did not want their trips. The Wades’ friends paid $2,000 per ticket for the trips. On their federal income-tax returns, the Wades reported as taxable income the trip awards they had received each year with a valuation of $2,000 per ticket, based on their friends’ ticket purchases. However, on the television stations’ federal income-tax returns, the stations calculated their actual direct costs of the trip awards and allocated the costs among the actual travelers on a pro rata basis. The stations’ valuations were higher than the $2,000 valuations reported by the Wades. The Commissioner of Internal Revenue (the commissioner) (defendant) treated the value of the trips as determined by the stations as taxable income to the Wades and determined that there were deficiencies in the Wades’ tax returns for 1983, 1984, and 1985. The Wades challenged the commissioner’s determination in the United States Tax Court.