Tax Court in Brief | Mihalik v. Commissioner | “De Minimus” Fringe Benefit Under Sec. 132

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The Tax Court in Brief – April 11th- April 15th, 2022

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Tax Litigation:  The Week of April 11th, 2022, through April 15th, 2022

Mihalik v. Comm’r | April 13, 2022 | Gustafson, D. | Dkt. No. 7881-19

Short Summary: Douglas Mihalik is a retired airline pilot and a participant in United Airline’s Retiree Pass Travel Program (RPTP). In 2016, United, through the RPTP, provided free airline tickets to Douglas Mihalik, his wife, daughter, and two adult relatives. The Mihaliks did not include the value of the free tickets in income on their 2016 tax return. The IRS later determined that the value of the tickets provided to the two adult relatives was required to be included and issued a notice of deficiency containing an adjustment for the omitted income. Total tax due was $2,862.00. The Mihaliks timely petitioned. They maintained that the value of the relatives’ tickets was non-taxable; that the tickets’ value represented the value of “de minimis travel provided to retired pilots,” allegedly a fringe benefit excluded from income under the tax code’s fringe benefit provisions. The IRS moved for summary judgment, arguing that the adult relatives were not among the individuals eligible for non-taxable fringe benefit treatment under the Code. In their response to the motion, the Mihaliks failed to allege any facts or legal argument to counter this contention. Finding that no genuine dispute of material fact existed, the Court ruled in favor of the IRS as a matter of law. In deciding the case, the Court read the pro se taxpayers’ petition to raise two issues for adjudication, whether provision of the relatives’ tickets was excludable from income, either as a “no-cost additional service” or a “de minimis fringe” benefit under I.R.C. §§ 132(a)(1) and (a)(4), respectively.

Primary Holdings:

Key Points of Law:

Insights:  This case makes two points worth noting. First, the Tax Court reads pro se petitions broadly. Although the taxpayers seemed to be relying on the “no-additional-cost services” fringe benefit exception, the Court seized on the words “de minimis” to examine whether another Section 132 exception applied. Second, the case demonstrates that the IRS will try a case of little monetary or precedential value if there are no factual disputes and the applicable law is clear and supports the government’s case, as here. Clearly, the recovery of $2,862.00 tax was not worth the government’s time and resources. However, the taxpayers, who did not contest the IRS’s factual allegations or interpretation of applicable law, gave the IRS no basis for settlement.

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