Sully and Sara Spartan Case Study

Posted: August 27th, 2021

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Sully and Sara Spartan Case Study

 Facts

Sully and Sarah Spartan got married in June 2011 and worked at Aggravating Airlines (AA). However, they lost their employment on 11 Sept 2001, after the airline shed off thousands of jobs. Fortunately, they both returned to fulltime employment in the year 2004 in AA. On 1 Jan 2010, new labor agreements were effected between AA and cabin workers requiring the company to reimburse meal allowance to the crew employees based on the flight numbers per crew per day. Additionally, in 2010 the company paid $6,584,329 to inform the cabin crews of meal allowances and deducted the equivalent amounts for the company’s federal tax returns as necessary and ordinary business expenses. However, AA did not inform the crew members on these payments to be part of the benefits to the employees. The IRS audited the company’s returns and disallowed meal deductions to the cabin crews. Furthermore, the IRS audited Sully and Sara’s tax proceeds and calculated the income and employment (FICA) taxes for unreported benefits on the meal payments. The calculations were therefore done without the knowledge of the affected party.

Issue

The issue is whether Sully and Sarah Spartan are liable for tax returns of the unreported income from the meal payments. However, AA did not inform the crew members on these benefits to the employees after new labor agreements became effective. Thus, the following section is a response to this issue.

Answer/ Response

AA should have informed the crew members’ of $6,584,329 meal benefits granted by the labor regulations. The company deducted the same amount for the corporation’s federal tax returns as necessary and ordinary business expenses. Therefore, Sully and Sarah Spartan are not liable for tax returns of the unreported income from the meal payments.

Rationale

According to Julius Online Catalog, employers should fully disclose the benefits accrued to the employees to file their returns. Hence,based on the ethical dilemma, AA is liable as it failed to inform the crew members of their meal benefits. Nevertheless, they deducted the same amount for the corporation’s federal tax returns as necessary and ordinary business expenses.

Works Cited

Julius Online Catalog. “Julius Online Catalog.” Julius.Law.Nyu.Edu, 2020. Accessed on 3 Sept 2020 from https://julius.law.nyu.edu/search?/cKF6324.A514+U55/ckf6324+a514+u55/-3%2C-1%2C0%2CE/frameset&FF=ckf6324+m67+1990&1%2C1%2C. Accessed 3 Sept 2020