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McCann v. United States - 696 F.2d 1386 (Fed. Cir. 1983)


26 U.S.C.S. § 61(a)(1) states in relevant part that except as otherwise provided in the subtitle, gross income means all income from whatever source derived, including but not limited to the following items: compensation for services, including fees, commissions, and similar items.


Appellants Leone A. McCann and Vertie M. Graves worked as sales agents for an insurance company. The company sponsored "sales seminars" for all its agents and managers who achieved a specified net increase in sales over the preceding year. Additionally, by surpassing even higher stipulated net increases in sales, an agent or manager was permitted to take companions on the trip. All expenses were paid by the company. In 1973 McCann and her husband attended a seminar in Las Vegas, Nevada; in 1975, Graves attended a seminar in Mexico City with her granddaughter. Neither appellants' included the trips as gross income on their tax returns for the those tax years. After an audit, appellee Internal Revenue Service ("IRS") decided that the fair market value of the trips constituted gross income, and it issued deficiency notices to appellants. Appellants paid the deficiencies and thereafter filed separate petitions for refunds, which the United States Court of Claims denied. Appellants appealed; the matters were consolidated for appeal.


Were the trips awarded by the company to McCann and Graves considered gross income for purposes of taxation?




The court affirmed the judgment from the court of claims. The court found that the trips constituted income, as they were in the nature of vacations, rather than business trips, and the seminars typically were held in exotic locations, qualifying employees were permitted to bring guests at the employer's expense, and qualifying employees were not required to attend. Moreover, appellants made no attempt to demonstrate that specific seminar activities were directly related to their business.

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