Charley v. Commissioner
91 F.3d 72 (1996)

  • Charley owned (and worked for) a company that required him to travel a lot. When he traveled he would get frequent flyer miles, which he kept for himself. Then on later trips he would bill clients for the price of a first-class ticket, but buy a coach ticket, use the points to upgrade to first-class, and pocket the difference.
    • Charley made $3,149 this way.
  • The IRS stepped in and claimed that the $3,149 was from his 'sale' of the frequent flyer miles, and needed to pay taxes on that gross income.
  • The Tax Court found for the IRS. Charley appealed.
    • The Tax Court found that the travel credits constituted gross income.
  • The Appellate Court affirmed.
    • The Appellate Court looked to 26 U.S.C. 61, which says that gross income included "all income from whatever source derived."
    • The Court noted that you could either consider this to be a "rip-off" by Charley of his employer, or a "sale" of his frequent flyer miles, but in either case, Charley made money, and that money was gross income.