## Facts

- Lawrence W. McCoy and Ilo P. McCoy, Tennessee residents, filed a joint federal income tax return for 1956.
- Lawrence McCoy worked for Hotpoint Appliance Sales Co., a division of General Electric Co. (GE), which ran an annual sales contest with awards.
- On November 5, 1956, McCoy received a new 1957 Lincoln Capri two-door coupe (with various options) as a contest prize at a company banquet in Jacksonville, Florida; the model had been on the market about one month.
- GE’s cost for the automobile was $4,452.54, and GE reported that amount to the IRS as additional compensation to McCoy.
- McCoy drove the car from Florida to Knoxville, Tennessee, and within about ten days traded it to a dealer for $1,000 cash plus a 1957 Ford Country Squire station wagon priced by the dealer at $2,600, implying a $3,600 trade-in value for the Lincoln.
- The McCoys reported $3,600 in income on their 1956 return as the value of the prize automobile.
- The Commissioner determined a $221.69 deficiency for 1956 based solely on valuing the prize automobile at $4,452.54.

## Issues

1. What was the fair market value of the prize automobile at the time McCoy received it for purposes of inclusion in gross income?

## Decision

- The Tax Court held that the automobile’s fair market value at the time of receipt was $4,000.
- The court rejected GE’s cost as automatically controlling and also rejected the taxpayer’s $3,600 figure as conclusive.
- The deficiency was to be recomputed based on the $4,000 valuation.

## Legal Principles

- Property received from an employer as a prize or award in connection with employment is includible in gross income at its fair market value when received.
- Fair market value is determined by the willing-buyer/willing-seller standard, with neither under compulsion and both informed of relevant facts.
- An employer’s purchase cost is probative evidence of fair market value but is not dispositive.
- A taxpayer’s prompt resale or trade-in price is relevant evidence but may be discounted where intervening use, mileage, and dealer trade-in economics may affect the price.

## Conclusion

The Tax Court treated both the employer’s cost and the taxpayer’s near-immediate trade-in as evidence of value, but fixed fair market value at $4,000 as of receipt, requiring income inclusion at that amount and recomputation of the resulting deficiency.


McCoy v. Commissioner, 38 T.C. 841 (1962)