CCA 201138048: Employee must include guests' flight costs in income even if the employee does not fly

Plain-English summary

Chief Counsel Advice addressed whether an employee must include the flight costs of guests in income when the employee does not take the flight. The advice stated that each passenger's flight must be valued separately under Treas. Reg. § 1.61-21(g)(3)(ii). If a guest's flight would be taxed to the employee, the employee must include the special-rule value of that flight in income when the guest travels because of the employee. The advice also stated that a taxable fringe benefit is included in the income of the person who performs the services connected with the benefit.

Ruling snapshot

• Question: Must an employee include the flight costs of guests in income when the employee does not fly?
• Outcome: advice given
• Key authorities: IRC § 61; Treas. Reg. § 1.61-21(a)(4), (g)(3)(ii)

Full text (IRS public release)

ID: CCA_2011090615595338 Number: 201138048
Release Date: 9/23/2011
Office: -----------------------------
UILC: 61.00-00

From: ----------------------------
Sent: Tuesday, September 06, 2011 4:00:02 PM
To: ----------------------
Cc:
Subject: SIFL question

Sterling, I checked with an attorney in -------------------------------------who handles fringe benefit questions, and this is his response:

Section 1.61-21(g)(3)(ii) of the Income Tax Regulations provides that the valuation of each flight must be determined on a passenger-by-passenger basis. For example, if an individual accompanies an employee and the flight taken by the individual would be taxed to the employee, the employee would be taxed on the special rule value of the flight by the employee and the flight by the individual." This example uses an employee and guest on the same flight. It is not necessary that the employee be on the flight, if the "guests" of the employee are on the flight as a result of the employee. In such case see 1.61-21(a)(4). A taxable fringe benefit is included in the income of the person performing the services in connection with which the fringe benefit is furnished.

So the employee doesn't have to fly to have the flight costs of his guests imputed to him as income to the employee for whom the fringe benefit is provided.

Hope this helps.