CCA 200932055: Counsel questions flat-rate valuation of airline buddy passes

Plain-English summary

Chief Counsel advice questioned the taxpayer's flat-rate valuation of airline buddy passes for round-trip, space-available flights. The email states that the regulations value a space-available flight at 25 percent of the carrier's highest unrestricted coach fare for the flight taken, on the date of that flight. The writer was inclined to resist reducing the value below the regulatory amount, but had not reviewed the taxpayer's arguments or asserted restrictions and could not reach a conclusive view. The advice also states that the prizes-and-awards exclusion did not appear applicable because the passes were not tangible personal property within the meaning of section 274(j).

Ruling snapshot

• Question: How should round-trip, space-available airline buddy passes be valued for tax purposes?
• Outcome: Advice given, subject to additional facts
• Key authorities: IRC §§ 61, 74(c), and 274(j); Treas. Reg. § 1.61-21(h)

Full text (IRS public release)

ID: CCA_2009070710103932 Number: 200932055
Release Date: 8/7/2009
Office: -----------------------------
UILC: 61.00-00

From: --------------------
Sent: Tuesday, July 07, 2009 10:10:46 AM
To: ---------------------------------------------------------------- Cc: Subject: RE: "Buddy Passes"

Without knowing more facts, I can't form a conclusive view. However, this is what occurs to me on just a quick read. How can it be reasonable to value all of these passes for round-trip space-available flights at the same flat rate (such as $---, $--------, or $--------) when our regulations clearly state that the value of a space-available flight is 25% of the actual carrier's highest unrestricted coach fare in effect for the flight taken?

Our regulations also clearly state that the date for valuing a space-available flight is the date that the flight is taken, regardless of the date on which the pass or ticket for the flight was issued. Reg. sec. 1.61- 21(h)(4).

I would be inclined to resist any attempt to reduce the value of these passes below what is prescribed by section 1.61-21(h). However, I haven't seen the taxpayer's arguments and I don't know what sort of "restrictions" they are asserting as a basis for reducing the value to 10 - 15% of highest unrestricted coach fare.

I don't think prizes and awards under section 74(c) should come into play because these flight passes are not an item of tangible personal property within the meaning of section 274(j).

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