Dr. Philip Charley and his wife Katherine Charley are appealing an income tax deficiency and penalty for tax year 1988. The issue is whether converting travel credits to cash in a personal travel account established by an employer counts as gross income to the employee for federal income tax purposes. Truesdail Laboratories had an unwritten policy that frequent flyer miles earned during an employee's travel became the sole property of the employee. Philip transferred funds to his personal travel account amounting to the difference in price between the first-class ticket and the coach ticket. The court affirmed the tax deficiency but reversed the penalty, as the Charleys did not know that the receipt of the travel credits was taxable income and did not intend to conceal the process utilized to obtain the travel credits.
Charley v. Commissioner (1996)
United States Court of Appeals for the Ninth Circuit
91 F.3d 72
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