## Facts

- Nathan L. Wade operated a Subaru automobile dealership in Salt Lake City, Utah, during tax years 1983–1985.
- A regional Subaru distributor purchased television advertising that generated “all-expense-paid” trip awards under station incentive programs.
- The distributor allocated multiple trip awards to area dealers based on annual Subaru sales; Wade received five awards (two tickets each) to Acapulco, Greece, Monte Carlo, Paris, and Israel.
- The award trips were arranged as group packages with charter travel and required group participation for the portion paid by the stations.
- Wade and his wife took the trips; on three trips, friends joined them after buying unused award tickets from other recipients for $2,000 per ticket.
- The Wades reported the awards as income but used $2,000 per ticket as fair market value.
- The television stations calculated their direct trip costs and allocated per-traveler costs on a pro rata basis; those amounts exceeded $2,000 per traveler.
- The Commissioner determined deficiencies for 1983–1985, increasing the value of the trip awards and disputing a claimed deduction for the imputed cost of the Israel trip under I.R.C. § 162(a).

## Issues

1. What fair market value of the promotional travel awards must be included in gross income under I.R.C. § 61?
2. Whether the value included in income for the Israel trip was deductible as an ordinary and necessary business expense under I.R.C. § 162(a).

## Decision

- The court held that the trip awards were includible in gross income at fair market value.
- The court largely sustained the Commissioner’s valuations based on the stations’ per-traveler cost allocations for the group packages, with minor adjustments.
- The court denied the § 162(a) deduction for the imputed cost of the Israel trip because petitioners failed to prove a primarily business purpose and adequate substantiation.

## Legal Principles

- Gross income under I.R.C. § 61 includes non-cash benefits, measured by their fair market value.
- Fair market value is determined by objective evidence reflecting what a willing buyer and willing seller would agree to with knowledge of relevant facts; isolated resale transactions may be weak evidence where they do not reflect a general market.
- For bundled group travel awards, provider cost and per-recipient allocation may be persuasive evidence of value when it reflects the package received under required terms.
- A deduction under I.R.C. § 162(a) requires proof that an expense is ordinary and necessary in carrying on a trade or business, proximately related to the business, and supported by substantiation of amount and business purpose.
- Promotional or recreational travel remains nondeductible personal consumption absent proof that the trip’s primary purpose was business rather than personal.

## Conclusion

The Tax Court valued dealer incentive travel awards using the stations’ objective per-traveler package costs rather than limited secondary ticket sales, and it denied a business-expense deduction because the taxpayer did not show that the trip was primarily for business or adequately substantiated.


Wade v. Commissioner, 55 T.C.M. (CCH) 413 (T.C. 1988)