U.S. Appeals Court Vacates Tax Court Ruling, Requires Claim-of-Right Analysis for Loyalty Program Income

The U.S. Court of Appeals for the Seventh Circuit vacated and remanded a Tax Court decision holding that a hotel corporation’s loyalty program fund income was taxable. The taxpayer, a hotel corporation, operated a loyalty program funded by contributions from all branded hotels, including third-party owned properties, with the fund also earning investment income and direct point sales revenue. The IRS determined that all fund income should be reported as the taxpayer’s income, while the taxpayer argued the income was excludable under both the claim of right doctrine and trust fund doctrine, and alternatively sought to use the trading stamp ...