McCann v. United States

McMann v. United States is 1981 federal court case in the United States that addresses the federal income tax treatment of compensation received by a taxpayer in a form other than money. The holding supports the proposition that rewards for services rendered, although not in the form of money, are included in gross income under the Internal Revenue Code, at usc|26|61. [1981 U.S. Ct. Cl. LEXIS 1495*, 81-2 U.S. Tax Cas. (CCH) para. 9689 (Ct. Cl. 1981), "aff'd", 696 F.2d 1386, 83-1 U.S. Tax Cas. (CCH) paragr. 9153 (Fed. Cir. 1983).]

Facts and procedural history

Leone McCann was employed by Security Industrial Insurance Company (Security) as a sales agent. [1981 U.S. Ct. Cl. LEXIS 1495, *2.] Security, a Louisiana company, was engaged in selling life, burial and accident insurance. [Id. at *3.] Security sponsored an annual sales seminar, generally in locations outside Louisiana. [Id. at *5.] An agent would qualify for attendance if she achieved a "specified net increase in sales during the preceding calendar year." [Id.] Qualifying agents were entitled to take along their spouse, and have all travel and other expenses paid for by Security. [Id. at *6.]

In 1973, Leone McCann was among the 11.7% of Security employees who qualified for the seminar, which that year was held in Las Vegas. [Id. at *7.] She attended with her husband. [Id.] The seminar included dinners, shows on the Las Vegas Strip, as well as sightseeing trips to nearby attractions. [Id. at *8-*10.] When the McCanns filed their joint income tax return for 1973, they did not include in their gross income any of the costs incurred by Security for paying for the McCanns’ expenses during the seminar. [Id. at *10-*11.] The Internal Revenue Service audited them and decided that the fair market value of the Las Vegas trip should have been included. [Id.] The McCanns went to trial.

Opinion

The court ruled for the IRS. The court found that the all-expense trip was “clearly” compensation for services rendered by McCann for Security. [ Id. at *12.] Therefore, because the trip was clearly compensation under the Internal Revenue Code which defines gross income as "income from whatever source derived" and because that definition includes compensation for services, the business trip should have been included in her return. [Id.] The court also held that when compensation is not paid in money, “it is necessary to determine the fair market value of the thing received.” [Id. at *13, citing Treas. Reg. § 1.61-2(d)(1).]

Notes