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Charley v. Commissioner

Citation. Charley v. Commissioner, 91 F.3d 72, 96-2 U.S. Tax Cas. (CCH) P50,399, 78 A.F.T.R.2d (RIA) 5694, 96 Cal. Daily Op. Service 5448 (9th Cir. July 24, 1996)
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Brief Fact Summary.

Appellant, Dr. Phillip Charley, used a frequent flyer mile scheme to convert frequent flyer miles into cash. The airline tickets were purchased by his employer and billed to the clients. He argued that the conversion of the frequent flyer miles should not count as income.

Synopsis of Rule of Law.

Gross income includes all income from whatever source derived.


Dr. Philip Charley was the president of Truesdail Laboratories. Truesdail was in the business of testing, including testing urine for horse racing. Charley and his wife, Appellants, owned 50.255% of the shares of Truesdail. Appellant Charley was an employee of Truesdail and as such earned frequent flyer miles. Appellant would bill clients for a first class ticket but only use a coach ticket. This process allowed appellant to accumulate $3,149.93. He did not report this as income.


Did the money from the travel credits constitute income?


Circuit Judge O’Scannlain issued the opinion for the United States Ninth Circuit Court of Appeals in affirming the tax court and holding the money was income.


Appellant exchanged frequent flyer miles for cash through a process intended to gain money. No matter how Appellant characterizes it, he gained money through these transactions and such should be included as taxable income.

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