Court Opinion

ID: 6331076
Source: CourtListenerOpinion
Date Created: 2022-04-13 19:02:25.939339+00
Date Added: 2024-06-11T09:23:08.298587
License: Public Domain

United States Tax Court

                          T.C. Memo. 2022-36

          DOUGLAS MIHALIK AND WENDI J. MIHALIK,
                       Petitioners

                                   v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                              —————

Docket No. 7881-19.                                 Filed April 13, 2022.

                              —————

             P–H is a retired airline pilot. In 2016 P–H’s former
      employer provided free airline tickets to Ps, Ps’ daughter,
      and Ps’ two adult relatives. Ps filed a joint federal income
      tax return for 2016 but did not include the value of the free
      airline tickets in their gross income.

             In a statutory notice of deficiency, the IRS
      determined Ps were required to include the value of the
      airline tickets provided to Ps’ adult relatives in their 2016
      gross income. Ps timely filed a petition contesting the IRS’s
      determination and alleging that the value of the tickets
      was excludable because the tickets were for “de minimus
      [sic] travel provided to retired pilots under [I.R.C.
      §] 132(b)”. R has filed a Motion for Summary Judgment on
      the ground that the value of airline tickets provided to Ps’
      adult relatives is not excludable under I.R.C. § 132(a)(1) as
      providing “no-additional-cost service[s]” as defined in
      I.R.C. § 132(b) because Ps’ adult relatives were not Ps’
      dependent children.

             Held: Ps were required to include in gross income
      the value of airline tickets provided by P–H’s former
      employer to Ps’ adult relatives because the value does not
      qualify for exclusion under I.R.C. § 132: The value is not
      excludable under I.R.C. § 132(a)(1) as providing

                           Served 04/13/22
                                             2

[*2]    “no-additional-cost service[s]” as defined in I.R.C. § 132(b),
        because Ps’ adult relatives were not Ps’ dependent children
        in 2016; and it is not excludable under I.R.C. § 132(a)(4) as
        “de minimis fringe” as defined in I.R.C. § 132(e), because
        the tickets had a value high enough that accounting for
        their provision was not unreasonable or administratively
        impracticable. R’s Motion for Summary Judgment will be
        granted.

                                       —————

Douglas Mihalik and Wendi J. Mihalik, for themselves.

Daniel G. Kempland and Melissa D. Lang, for respondent.

                           MEMORANDUM OPINION

      GUSTAFSON, Judge: The Internal Revenue Service (“IRS”)
issued to petitioners, Douglas and Wendi J. Mihalik (“the Mihaliks”), a
statutory notice of deficiency (“SNOD”) pursuant to section 6212, 1
determining a $2,862 deficiency for the year 2016.

       After concessions by respondent, the Commissioner of the IRS,
only one issue remains to be decided: whether the Mihaliks were
required to include, in their gross income for 2016, the value of airline
tickets provided to their adult relatives under Mr. Mihalik’s retiree
travel benefit. The Commissioner filed a Motion for Summary
Judgment pursuant to Rule 121, asserting that the Mihaliks were
required to include the value of the tickets in their gross income because
their adult relatives were not persons exempted under section 132(a)(1).
For the reasons stated below, we will grant the Commissioner’s motion.

                                      Background

       For purposes of the Commissioner’s motion, we assume correct
the facts asserted by the Mihaliks that are supported in compliance with

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26, U.S.C., as in effect at all relevant times; all regulation references are to
the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times;
and all Rule references are to the Tax Court Rules of Practice and Procedure. Some
dollar amounts are rounded.
                                           3

[*3] Rule 121, the facts that they have admitted pursuant to Rule 90,
and the facts shown by the Commissioner that they have not disputed.
Those assumed facts are as follows.

The Mihaliks’ background

      Mr. Mihalik is a retired airline pilot who was formerly employed
by United Airlines. At the time they filed their petition, the Mihaliks
resided in the State of Florida.

United Airlines’ Retiree Pass Travel Program

      In 2016 United Airlines provided retired pilots (and their family
members and friends) with free stand-by airline tickets under a retiree
benefits program entitled the Retiree Pass Travel Program (the
“RPTP”). 2

       United Airlines kept records of tickets issued to the Mihaliks and
their relatives in 2016. For each flight, the records list the flight date,
each passenger’s name, the value of each ticket issued (determined by
United Airlines), and whether the value of each ticket constituted
reportable taxable income to Mr. Mihalik. The records also note each
passenger’s birth date and relationship to Mr. Mihalik.

       Mr. Mihalik, Mrs. Mihalik, and their daughter traveled
extensively under the RPTP in 2016. United Airlines’ records list
Mrs. Mihalik’s relationship to Mr. Mihalik as “Spouse” and the
Mihaliks’ daughter’s status as “Daughter”. The records also report a
zero taxable “wage amount” for tickets issued to Mr. Mihalik, Mrs.
Mihalik, and their daughter, and add the note “no taxation” behind each
of those entries. The taxable nature of the tickets issued to each of them
is not in dispute.

       Because of their connection to Mr. Mihalik, Sean Garth Mihalik
and Jessica Marie Liening Mihalik also received tickets from United
Airlines under the RPTP in 2016. United Airlines’ records list Sean’s
and Jessica’s relationships to Mr. Mihalik as “Enrolled Friend”, label
each as a “taxable pass rider”, and report a taxable “wage amount” for
each ticket issued to Sean and Jessica under the RPTP. Because Sean
and Jessica have the same surname as the Mihaliks, we assume that

        2 Flying “stand-by” generally refers to airline travel by a passenger who does

not reserve a seat in advance and who instead occupies a seat on a flight if that seat is
open immediately before takeoff.
                                          4

[*4] they also share some familial relation. But the Mihaliks do not offer
any information to clarify that relation and therefore, for the purposes
of the Commissioner’s motion, we assume that Sean and Jessica are
simply relatives (to an unknown degree) of the Mihaliks. Although some
dates are redacted, the records list the birth years for Sean and Jessica
as 1983 and 1984, meaning Sean and Jessica were both over the age of
30 in 2016.

      The value of the tickets provided to Sean and Jessica under
Mr. Mihalik’s RPTP in 2016 equaled $5,478. 3 United Airlines reported
this amount as income paid to Mr. Mihalik on the Form 1099–MISC,
“Miscellaneous Income”, which it filed with the IRS.

The Mihaliks’ 2016 federal income tax return and the SNOD

      The Mihaliks timely filed a joint federal income tax return for the
year 2016 by the extended deadline but did not include in their gross
income the value of the tickets provided to Sean and Jessica. The
Mihaliks did not claim dependents on their return.

       The IRS issued to the Mihaliks an SNOD determining a
deficiency of $2,862, largely due to an adjustment including in their
gross income the value of the tickets provided to Sean and Jessica. The
Mihaliks timely petitioned this Court for redetermination of the
deficiency pursuant to section 6213(a).

Tax Court proceedings

        The Mihaliks’ Petition states that the “$5,478 listed in the . . .
United Airlines [Form] 1099–C[4] represents the value of de minimus
[sic] travel provided to retired pilots under Rule 132(b) [sic] . . . [and] as
such[,] it is non-taxable”. This statement appears to conflate the legal
concepts of section 132(b), regarding no-additional-cost services, and
section 132(e), regarding de minimis fringe benefits, by its reference to
both “Rule 132(b)” and “de minimus”. However, the petition offers no
legal analysis (apart from repeating this initial assertion) regarding

       3  United Airlines calculated the ticket values, and neither party disputes its
calculations.
        4 Form 1099–C, “Cancellation of Debt”, is a form for reporting information

regarding a discharge of indebtedness (which is not at issue here), and so we assume
for the purposes of this discussion that the Mihaliks meant to reference the Form
1099–MISC (reporting miscellaneous taxable income paid to Mr. Mihalik) that United
Airlines filed with the IRS.
                                         5

[*5] whether the airline tickets qualified as either no-additional-cost
services under section 132(a)(1) and (b), or de minimis fringe benefits
under section 132(a)(4) and (e), and therefore it does not clarify the
ambiguity regarding allegedly nontaxable “de minimus [sic] travel”
benefits under “Rule 132(b)”.

       At multiple points in these proceedings (both by order and
telephone conference), this Court advised the Mihaliks of their
responsibility to cooperate with the Commissioner in preparing for trial
and to provide information they intended to offer to prove their case. We
also advised the Mihaliks that trial of this case would likely involve their
putting on proof to support their allegation that the value of the tickets
provided to Sean and Jessica did not constitute taxable income to the
Mihaliks.

        The Mihaliks filed a status report on January 29, 2021, in which
they asserted that they need not prove the merits of their contentions
because the Commissioner “improperly answered the original petition[,]
. . . violated the APA[,] . . . [and] violated the Constitution”. In our
order dated February 8, 2021, we advised the Mihaliks that these
assertions were not sound. Thereafter, the Commissioner filed his
Motion for Summary Judgment.

       By our order dated March 22, 2021, we directed the Mihaliks to
respond to the Commissioner’s motion and to identify the specific facts
in dispute, to state any assertion with which they disagreed and the
reason for their disagreement, and to cite evidence supporting their
position. We also directed the Mihaliks to set out their position on any
disputed legal issues, and we identified procedural resources for their
reference (e.g., the Q&As prepared by the Court on motions for summary
judgment). We specifically noted that a decision may be entered against
an adverse party for its failure to adequately respond to a motion for
summary judgment under Rule 121(d).

      The Mihaliks first filed a response to the Commissioner’s motion
for summary judgment alleging that they did not receive service of the
Commissioner’s motion. 5 The Commissioner re-served his motion, at

        5 Mr. Mihalik registered for electronic service in the Court’s system (with a

stated preference for electronic service). Mrs. Mihalik stated a preference for paper
service only. The Commissioner initially served his motion for summary judgment and
supporting declaration and memorandum electronically. After Mr. Mihalik’s response,
the Commissioner re-served his pleadings by mail, and we afforded the Mihaliks
additional time to respond to the Commissioner’s motion.
                                          6

[*6] which point we ordered the Mihaliks to file a supplemental
response. The Mihaliks’ supplemental response did not address the
Commissioner’s assertions in his motion for summary judgment or
contain any discussion of section 132(a)(1), (a)(4), (b), or (e), and it
consisted instead mostly of allegations regarding the Commissioner’s
supposed failure to comply with discovery requests. 6

                                    Discussion

I. General principles of law

       A. Summary judgment standard

      The Court may grant summary judgment when there is no
genuine dispute as to any material fact and a decision may be rendered
as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98
T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

       The moving party (here, the Commissioner) bears the burden of
showing that no genuine dispute of material fact exists, and the Court
will view any factual inferences in the light most favorable to the
nonmoving party (here, the Mihaliks). Dahlstrom v. Commissioner, 85
T.C. 812, 821 (1985). However, Rule 121(d) imposes a duty on a party
resisting summary judgment:

       When a motion for summary judgment is made and
       supported as provided in this Rule, an adverse party may
       not rest upon the mere allegations or denials of such party’s
       pleading, but such party’s response, by affidavits or
       declarations or as otherwise provided in this Rule, must set
       forth specific facts showing that there is a genuine dispute
       for trial. If the adverse party does not so respond, then a
       decision, if appropriate, may be entered against such party.

         6 The Mihaliks also claim that they filed with the Court a motion to compel,

and that, absent a decision on their motion to compel, they are “unable to make an
informed response” to the Commissioner’s motion. Their alleged motion to compel does
not appear in our record. From their comments about the unfiled motion to compel, it
does not appear that the information supposedly sought (“all communications and mail
logs”) could have changed the outcome of this case, and they do not suggest any way in
which it could have. In any event, they were obliged by Court order to respond to the
Commissioner’s motion for summary judgment, and they were not entitled to refuse to
do so until the Court ruled on another motion.
                                           7

[*7] The Commissioner offers his correspondence with United Airlines
and the airline’s records to support the factual assertions in his motion
relating to section 132(a)(1) and (b). The Mihaliks’ responses to the
Commissioner’s motion do not contradict with any specificity the
Commissioner’s offered support for his assertions regarding section
132(a)(1) and (b) or set forth specific facts showing that there is a
genuine dispute regarding the de minimis fringe benefit exclusion under
section 132(a)(4) and (e). Accordingly, we hold that no material facts are
in dispute, and the issue of whether the Mihaliks were required to
include in their 2016 gross income the value of the tickets provided to
Sean and Jessica may be decided as a matter of law.

        B. Exclusion under section 132

      Gross income means all income from whatever source derived,
unless specifically excluded by law. See § 61(a); Treas. Reg. § 1.61-1(a).
Section 132 excludes from gross income the value of certain “fringe
benefit[s]” provided by an employer to an employee. An employee must
include in gross income the value of any fringe benefit provided to the
employee, or to a third party on the employee’s behalf, that does not
meet the criteria for exclusion under section 132. § 61(a)(1); see also
Treas. Reg. § 1.61-21(a)(4).

                1. Section 132(a)(1) and (b)

       Section 132(a)(1) excludes from gross income the value of any
fringe benefit that qualifies as a “no-additional-cost service”. As defined
in section 132(b), a “no-additional-cost service” is any service that is
(1) provided by an employer to an employee, (2) at no substantial
additional cost to the employer (including forgone revenue), (3) for use
by the employee, and (4) offered for sale to customers in the ordinary
course of business of the employer. See also Treas. Reg. § 1.132-2(a)(1).
Excess capacity services, such as stand-by flights provided by
commercial airlines to their employees, are generally considered
no-additional-cost services and are non-taxable to the recipients. 7 Id.
subpara. (2).

        7 If a commercial airline permits its employees to take personal flights on the

airline at no charge and to receive reserved seating, employees receiving such free
flights are not eligible for the no-additional-cost service exclusion.            Treas.
Reg. § 1.132-2(c). In such instances the airline forgoes potential revenue by permitting
the employees to reserve seats, and therefore the service is not a no-additional-cost
service. Id.
                                    8

[*8] For the purposes of section 132, the term “employee” includes a
retiree of the employer and the spouse and dependent children of a
retiree. § 132(h); Treas. Reg. § 1.132-1(b)(1). For this purpose, a
“dependent child” is any son, stepson, daughter, or stepdaughter who is
a dependent of the employee, or both of whose parents are deceased and
who has not attained age 25. Treas. Reg. § 1.132-1(b)(5).

       Section 152(a)(1) defines the term “dependent” (for the purposes
of subtitle A of the Code, which includes section 132) as including a
“qualifying child”. A “qualifying child” is an individual who, in addition
to meeting other requirements, “has not attained the age of 19 as of the
close of the calendar year in which the taxable year of the taxpayer
begins, or is a student who has not attained the age of 24 as of the close
of such calendar year.” § 152(c)(1)(C), (3)(A).

             2. Section 132(a)(4) and (e)

       Section 132(a)(4) excludes from gross income the value of any
fringe benefit that qualifies as “de minimis fringe.” The term “de
minimis fringe” is defined in section 132(e)(1) to mean “any property or
service the value of which is (after taking into account the frequency
with which similar fringes are provided by the employer to the
employer’s employees) so small as to make accounting for it
unreasonable or administratively impracticable.” The provision of a
cash benefit, for example, is almost never excludable as a de minimis
fringe benefit because accounting for its distribution is not
administratively burdensome. Treas. Reg. § 1.132-6(c). Additionally, a
benefit that an employer provides frequently to employees is not likely
to be “de minimis.” Id. para. (b).

       Examples of excludable de minimis fringe benefits include coffee,
doughnuts, and soft drinks, local telephone calls, and occasional
personal use of an employer’s copy machine. Id. para. (e)(1). Examples
of benefits that are not excludable de minimis fringes are: season tickets
to sporting or theatrical events, the commuting use of an employer-
provided automobile or other vehicle more than one day a month, and
use of employer-owned or leased facilities (such as an apartment,
hunting lodge, boat, etc.) for a weekend. Id. subpara. (2).
                                           9

[*9] II. Analysis

        A. Section 132(a)(1) and (b)

       The Commissioner asserts that the Mihaliks were required to
include in their gross income the value of the airline tickets issued to
Sean and Jessica because they are not the Mihaliks’ “dependent
children” as defined in section 132(h)(2)(B). Therefore, he argues that
Sean and Jessica cannot be treated as “employees” for the purposes of
section 132(b), and that the airline tickets provided to them under the
RPTP do not qualify for exclusion as no-additional-cost services under
section 132(a)(1). 8 In support of his assertion, the Commissioner offers
records from United Airlines that provide the birth years of Sean (1983)
and Jessica (1984) and list Sean and Jessica as “Enrolled Friends”
(instead of family members), that designate each as a “taxable pass
rider”, and that state a taxable “wage amount” for the tickets issued to
Sean and Jessica. He also offers the Mihaliks’ 2016 return, which does
not claim any dependents and thereby indicates that Sean and Jessica
were not dependents.

       Although we view factual inferences in the light most favorable
to the Mihaliks and therefore assume Sean and Jessica were relatives
of the Mihaliks because of their shared surname, United Airlines’
records and the Mihaliks’ 2016 return support the conclusion that
neither Sean nor Jessica was the Mihaliks’ dependent child in 2016.
Neither Sean nor Jessica was under the age of 19 in 2016, 9 and
therefore, no matter what their relationship is to the Mihaliks, they
cannot qualify as “dependents” under section 152(c) (or, necessarily, as
“dependent children” under section 132(h)).

       To prevail against the Commissioner’s motion, the Mihaliks must
show that Sean and Jessica qualified as their dependent children under
section 132(h) in 2016.       But the Mihaliks do not dispute the
Commissioner’s showing that Sean and Jessica were not their
dependent children in 2016, that Sean and Jessica received tickets from
United Airlines under the RPTP, or that the tickets had the value

        8 The Commissioner does not contest the remaining no-additional-cost service
factors under section 132(b), i.e., whether tickets issued under the RPTP in 2016 were
offered for sale to United Airlines’ customers in the ordinary course of United Airlines’
business, or whether United Airlines incurred a substantial additional cost in issuing
tickets to retirees and their relatives.
        9 The Mihaliks do not allege that Sean and Jessica were full-time students in

2016, so the age 24 threshold of section 152(c)(3)(A)(ii) is inapplicable.
                                     10

[*10] calculated by United Airlines. In fact, the Mihaliks do not address
the Commissioner’s factual assertions at all, despite our order giving
explicit instruction to do so in their responses to the Commissioner’s
motion. Instead, they offer only general denials and unsupported
allegations that the Commissioner “made . . . false claim[s] that there
[were] no relevant facts in dispute”. Such generalities do not give rise
to a genuine dispute of material fact under Rule 121(d).

       In light of the Commissioner’s showing, and without any specific
and supported factual allegations to the contrary, we must hold that
Sean and Jessica did not qualify as the Mihaliks’ dependent children
under section 132(h) in 2016. Therefore, Sean and Jessica were not
“employees” for the purposes of section 132(b), and the value of the
tickets provided to them under the RPTP does not qualify for exclusion
as providing no-additional-cost services under section 132(a)(1).

      B. Section 132(a)(4) and (e)

       In their petition the Mihaliks assert that the tickets issued under
the RPTP were non-taxable “de minimus [sic] travel” benefits. Although
the Mihaliks cite section 132(b) to support this assertion, we construe
their pro se petition broadly; and we therefore assume that by their
reference to “de minimus”, they intended to rely on section 132(a)(4)
and (e), regarding “de minimis fringe” benefits.

       However, the Mihaliks’ petition does not suggest any legal
analysis regarding how the airline tickets might qualify as a de minimis
fringe, and—critical to our ruling on the Commissioner’s motion for
summary judgment—the Mihaliks did not include any related facts or
argument in their responses to that motion. The Mihaliks, therefore,
have not set forth specific facts about “de minimis fringe” that show
there is a genuine dispute on this issue for trial, as required by
Rule 121(d).

       Moreover, any argument that the airline tickets constitute a de
minimis fringe benefit would manifestly fail on its merits. United
Airlines’ records indicate that it issued airline tickets frequently under
the RPTP and the value of the airline tickets issued to Sean and Jessica
($5,478) greatly exceeds the low-fair-market-value examples provided
by Treasury Regulation § 1.132-6(e). It is also clearly neither
unreasonable nor administratively impracticable for United Airlines to
account for tickets issued under the RPTP. To the contrary, United
Airlines records document substantial data about the RPTP tickets,
                                  11

[*11] including the tax implications to Mr. Mihalik of the tickets
provided to non-family members. Therefore, we hold that the airline
tickets provided to Sean and Jessica do not qualify as de minimis fringe
benefits whose value is excludable under section 132(a)(4).

                              Conclusion

      The Mihaliks were required to include in their gross income for
2016 the value of the tickets provided by United Airlines to Sean and
Jessica. We will therefore grant the Commissioner’s motion. So that
the deficiency can be recomputed to take account of the Commissioner’s
concessions on other issues,

      An appropriate order will be issued, and decision will be entered
under Rule 155.