## Facts

- Charles W. Ireland was a senior executive and significant shareholder of Vulcan Materials Company, headquartered in Birmingham, Alabama.
- Ireland chose to live in Lynn Haven, Florida, while continuing to work primarily at Vulcan’s Birmingham headquarters.
- Vulcan provided company aircraft for Ireland’s travel between Florida and Birmingham; Ireland did not reimburse the company, and family members sometimes accompanied him.
- The IRS treated the flights as a taxable economic benefit to Ireland under the Internal Revenue Code, characterizing them as personal commuting benefits and/or constructive dividends.
- The IRS valued the benefit using Vulcan’s aircraft ownership and operating costs rather than market pricing for comparable charter service.
- Ireland paid the assessment and sued for a refund, disputing both (i) taxability and (ii) valuation.

## Issues

1. Whether company-provided flights between Ireland’s chosen residence and Vulcan’s headquarters constituted taxable income as personal commuting (and/or constructive dividends) rather than excludable employer-convenience business travel.
2. If taxable, whether the value of the flights should be measured by Vulcan’s operating costs or by the fair market value of comparable charter flights.

## Decision

- The Fifth Circuit affirmed that the value of the flights was taxable income to Ireland.
- The court held the trips were properly treated as personal commuting arising from Ireland’s decision to live far from his principal place of business, making corporate payment of that travel a taxable economic benefit.
- The Fifth Circuit reversed the valuation method used by the IRS and adopted by the district court.
- The court remanded for recalculation of the taxable amount using a market-based valuation tied to comparable charter services.

## Legal Principles

- Gross income under I.R.C. § 61 includes economic benefits provided to an employee or shareholder, including employer-paid personal commuting.
- Travel costs caused by a taxpayer’s personal choice of residence, rather than business necessity, are personal commuting; when borne by the employer or corporation, the value is includible in the recipient’s income.
- A corporation’s payment of primarily personal benefits to a shareholder-employee may be treated as a constructive dividend includible in income.
- In-kind benefits are generally valued at fair market value; corporate internal costs are not controlling when they do not reflect the market value of the service received.
- For employer-provided air transportation treated as income, comparable charter rates are an appropriate benchmark for fair market value.

## Conclusion

The Fifth Circuit held that a corporation’s provision of aircraft for a shareholder-executive’s travel between his chosen out-of-state residence and corporate headquarters created taxable income, but required that the benefit be valued by fair market charter rates rather than the corporation’s aircraft operating costs.


Ireland v. United States, 621 F.2d 731 (5th Cir. 1980)