Appendix — Anderson v. Commissioner

Supreme Court brief1967

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"APPENDIX A

No. 16389 -

United States Court of hapeals,

FOR THE SIXTH CIRCUIT.

Comnassiowen OF Fadeauss Revexve,) Bi gah

é Petitioner, | On Petfrion for

AW SS3N _ .> |, Review of the

; SR ag | (By bh Decision of ‘the

Cuartas N. ANDERSON and Tax Court of the.

Grace M. ANDERSON, = “United States. * *

, Ba) : , Respondents. J ati

Decided December 23, rf

Before: McAtsasrm, Senior Circuit, J des, ‘CELEBREZZE,

| Cireuit Judge, and Wilson, District Judge’.

Wnuson, District Judge. This case“ ‘comes before the

Court upon the petition of the Commissioner ‘tf Internal

Revenue seeking a review of the decision of the Tax Court

Of the United States. The Tax Court held, among other ~

things, that the value of: meals and lodging furnished the

‘ taxpayer by his employer was properly excluded by the

_ taxpayer from gross income under the provisions of Séc-

- tion 119 of the Internal Revenue Code of 1954. (26 U.S.C. .

' 1958 ed., Sec. 119) The facts, as found by the Tax Court’

are not here disputed. The Commissioner does insist, how-

ever, that the Tax Court was in error in construing that |

portion of the statute which requires that meals and lodg-

_ ing be furnished “fon the business premises of the.em- —

: * Frank W. Wilson, District Ju e, Eastern District of ennessee, ae

sitting by designation. -” i ah

2a sg Court of Appeals Opimion

ployer” as.a 5 condition to their — being excluded from

gross income in determining the taxpayer’ s income tax >

liability. Thus, the single issue presented upon this —

is one of statutory construction.

The facts as found by the Tax Court, and insofar as réle-

vant to- the issue presented upon this pens for review,

areas follows: _ 6.

- Charles N. Anderson, herein referred to as the taxpayer,

was employed by the Lincoln Lodge. Corporation as, the

-manager of the Lincoln Lodge, a motel located in Colum-

. bus, Ohio, such employment beginning upon the date of the

motel’s opening on July 1, “1956, and continuing through

the years 1958, 1959 and 1960, which form the three tax-

able years here involved. During the first. year of opera-

tion, the taxpayer, his wife and three children lived in the

motel in a two-room combination livingroom, bedroom, and

_ kitghen suite. The unsatisfactory nature of such crowded

quarters as a family residence was shortly called to the

_ employer’s attention. After considering the-loss of revenue

. occasioned by the taxpayer’s occupying the additional space

_within the niotel, the employer decided to look for a house

- close by and move the taxpayer and his family out of the

motel. The ‘taxpayér’s preference for’a home some several

blocks; from the motel was rejected by the employer, who

desired for business reasons to keep its motel manager

as Glose to the motel as possible. The employer considered,

' but likewise rejected, building a new residence upon the __

motel property, inasmuch as that land was.considered by ~__

the employer to. be too valuable for such a use. A lot’was _

. - finally selected at 191 Schoolhouse Lane in nearby Lincoln

_ + Village, the lot being described as ‘‘two short blocks’’ from ©

' the motel, and being the closést respec, property zoned

EP A

Court of Appeals Opinion . 3a

for single residence. The property was paid for by Lincoln

Lodge Corporation. The Corporation also paid for the con-

struction of afgingle family residence thereon. For reasons

not here relevant, title to the property was. initially taken

in the taxpayer’s name, and later transferred to the name

of Lincoln Lodge Corporation, but no issue exists but that.

the employer furnished all funds for the purchase and con- -

struction of the residence and was the owner of the prop-

erty at all times and for all purposes relevant to this Jaw-

suit. The taxpayer,.as manager of the Lincoln Lodge, was

required by his employer to be available upon a 24 hour

‘ a day basis in order to oversee the management and opera-

tion of the motgl. For this reason. he was required by his

employer, as a condition of his employment, to live in the

‘house at 191 Schoolhouse Lane, which was déscribed as

being approximatély a four minute walk or a two minute

drive from the main lobby of the motel or, as stated above,

‘‘two short blocks’? from the motel. Upon completion’ of

- eonstraction of the house in J uly of 1957, .the taxpayer-

and his family moved into it. The home was provided by

the employer without cost to the taxpayer. The employer —

also paid all utilities at the home, as well.as all laundry, —

. dry cleaning, and cleaning expenses.-Additionally, the em-

ployer furnished the taxpayer’s family with milk and cer-

tain staple groceries without cost to the taxpayer. _

The Tax Court found the fait rental value of the resi-

dence to be in the sum.of $1920.00 per year, the value of .

' utilities furnished to be in the sum of $600.00 per year, thé

value of laundry, dry cleaning, and cleaning’ services to

be in the sum of $600.00 per year and the value of milk and’

staple groceries furnished to be in the sum of $300.00: per

year. These values are not here in dispute. Thus, for each

ce Seal _ Court of =—_ bf snot a

’

of the three tax years here involved the value of meals fur-

_ nished the taxpayer by his employer was in the sum of .

$300.00 per year and value of lodging was in the sum of

$3120.00.

No issue is here raised by the Commissioner with refer-

ence to the conclusions of the Tax Court that the meals and

lodging were furnished for the convenience of the employer

and the conclusion that the taxpayer was required to accept

the lodging as a condition of his employment: Rather, it is °

. the conclusion of the-Tax Court that the meals were fur-

_nished and the lodging provided ‘‘on the business premises .

' of’the employer’’, and were thus properly excludable from

gross income by the taxpayer for the years 1958, 1959 and

1960 that forms the issue yar upon this Petition for

Review.

Section 61 of the Internal Revenue Code of 1954 defines

gross income as ‘‘.. . all income from whatever source

derived, including . . . compensation for. services’’. (26

U.S.C. 1958 ed., See. 61) The relevant Treasury regulations

in this regard provide that, ‘‘If services are paid for other

than in money, the fair market valge of the property or

services taken in payment must be included in income.’’

(26 C.F.R., See. 1.61-2(d)] ;

It is thus obvious that the value of meals and edging re-

ceived by the taxpayer in return for his services as man-

ager of the motel would properly be includable in his gross

- income. for the tax ‘years involved unless excluded under

another provision of the 1954 Code. See Commissioner v:

Duberstein, 268 U.S. 278; Commissioner v. Lo Bue, 351

U.S. 243; Commissioner ¥ v. Glenshaw Glass Co., 348 U.S.

426.

As authority for excluding the value of meals i lodging

from gross income, the taxpayer relies upon Section 119 of

; / : . °

200 gg a rt,

nein sacri eme e e eae care nee

. Court of Appeals Opinion | 5a

the 1954 Code. This section hiss in velovanit part, i as

. follows :

SEC. 119. MEALS OR LODGING FURNISHED

Thi FOR THE CONVENIENCE OF THE

- EMPLOYER.

— shall be excluded from gross income of an

mployee the value of any meals or lodging furnished

im by his employer for the convenience of. the em-

ona but only if—

(1) in the case of meals, the suet are furnished on «

the business premises of the employer, or

(2) in the ease of lodging, the employee i is required |

to accept such lodging on the business premises of his

employer as a wists 3 of his’ ie Sescea

* * *

(26 U:S.C. 1958 ed., Sec. 119) ,

Thus, therconditions for excluding the value of beitaie

furnished an employee’ are three: namely, (1) that such —

~ lodging he furnished for the convenience of the employer; .

(2) that it be located on the business premises of the em-

: ployer; and (3) that the employee be required to accept

such lodging as a condition of his employment. The condi-

tions for excluding the value of. meals furnishedan em-

ployee are two: namely, (1) that such meals be furnished

« for the convenience of the employer and (2) that they be

furnished ‘‘on the business premises of the employer’’.

The Tax Court in an unreviewed opinion, and without |

any specific effort at defining the statutory language ‘‘on .

the business premises of the employer’’, concluded that

* since 2 the employer, motivated by business reasons, and for -

his own convenience, acquired the residence within two

short blocks of the motel and required the taxpayer to.

live there to be more readily available at the motél on 24

hour a day call, the residence was’ ‘‘on ¢he business prem-

. x

6a : Court of Appeals Opinion

ises’? of the employer within the meaning of Sec. 119. The

_ specific language of the opinion in this regard was as fol-

lows:

“Tn our view to conclude that property ownedby an

_. employer within two short blocks of a facility being.

’ managed by the employee who is required to be avail-

able on a 24 hour call for management of the oer

er’s business, is not on the business premises of the

employer within the meaning of Section 119, where the

- -employee is required to accept such lodgings for the

‘convenience of the employer, is too restrictive an inter-

' pretation. We, therefore, hold that the lodgings fur-

nished to petitioner were furnished to him by his em-

ployer for the convenience of the employer and -that

etitioner was required to accept such lodgings.on the

usiness premises of his employer as a condition of

his employment.’’ , |

Thus, the Court below appears to have interpreted the

phrase ‘‘on the business premises of the employer’’ as in-

- eluding any residential property owned by the employer

and: furnished the employee, provided. (1) it was acquired

from business - motives ; (2) it was-in the vicinity of or

‘‘within-two short blocks’’ of the place where the employee

‘performed his duties;‘and (3) the employee was. required

to accept it as a condition of his employment. With this

pragmatic conclusion this Court is unable to agree.

Before undertaking a construction or definition of the

statutory language ‘‘on-the business premises of the em-

_ ployer’’ as that phrase is used in Sec. 119, it is proper. to

call attention to the well settled rule of statutory construc-

tion which requires that provisions within tax legislation:

_ granting .exemptions be strictly construed in accordance

with their terms. Helvering v. Northwest Steel Mills, 311. |

» US. 46; United. States v. Stewart, 311 U.S. 60; Commis- -

‘Court of Appeals Opinion | - | Me

_ Stoner v. Jacobson, 336 U.S. 28; Curtis v. United States, 336

_ ‘F.2d 714, 721 (€.A. 6th) ; Nielsen v. United States, 333 F.2d

615, 617 (C.A. 6th). As the Supreme Court stated in United .

States v. Stewart, supra, p. 71: . ter

‘*, . . respondent has succeeded ter: Sata, A some

doubt on the proper construction of the statute. Yet

. _ those who seek an-exemption from a tax must rest it

_ on more than a doubt or ambiguity. Bank of Commerce,

v. Tennessee, 161 U.S. 134, 146; 163 U.S. 416, 423.

Exemptions from faxation cannot rest upon mere im-

ae ge United States Trust Co. v. Helvering, 307

S. 57, 60. As stated by Mr. Justice Cardozo in Trot-

ter v. Tennessee, 290 U.S. 354, 356; ‘‘Exemptions from

_ taxation are not to be enlarged by implication if doubts

-are nicely balanced.’ And see Pacific Co., Ltd: v. John-

son, 285 U.S.°480, 491. Hence broad, generalized statu-

tory exemptions have frequently been construed nar-

rowly and confined to those situations where the

_ subject matter of the. exemption was directly, not in-

directly or remotely, involved. Murdock v. Ward, 178 -

US. 139; Hale v. State Board of Assessment and-Re-.

view, 302.U.S. 95; United States Trust Co. v. Helver-

mg, supra, *:.*,*7* * | drethecik |

_ The requirement that meals and lodging must be fur-

nished and accepted ‘‘on the business premises of the em- ©

ployer’’ is new in the 1954 Code. The original version of

the statute, as enacted’ in the House of Representatives,

. used the term ‘‘place of. employment’. This term was

changed by the Senate to ‘‘business premises’’ and this

’ change was acceded to by the House. H. Conference Rep. -

No. 2543, 83rd Cong., 2d Sess., p. 27 [3 U.S.C. Cong. & Adm.

News (1954) 5280, 5286.] Nothing in the Senate or Confer-

ence report suggests that ‘the term ‘‘business premises’’

was intended to extend the exclusion beyond the version

. offered by the House. which used: the phrase ‘‘place of em-

8a - Court of Appeals Opinion

ploymen of Indeed the Senate Report stated [S. Rep. No.

_ 1622, 83d Cong. 2d Sess., p. 19 aCe USC. sabes & Adm.

News (1954) 4621, 4649)]: AN

’ The House arid your committee has adopted provisions

designed to end the confusion as to the tax status of -

meals and -lodging furnished an employee by his em-

ployer. Under both bills, meals and lodging are to be

excluded from the e epee ’s income if they are fur-

nished at the place of employment and the employee

is required to meet certain oe, conditions —

below.

The Conference Report likewive contained similar language.

There it is stated (H. Conference Rep. No. 2543, supra,

p. 27):,

_ The term ‘‘business premises of the employer’? is in-,

tended, in general, to have the same effect as the term

“place of employment’? in the House bill. For example,

lodging furnished in the home to a domestic servant

would be considered lodging furnished on the business

premises of the employer. Similarly, meals furnished ©

to a cowhand while herding his employer’s cattle on

leased lands, or on national forest lands used under a

perme would also be regarded as furnished .on the

usiness premises of the employer. pipet

Thus, it would appear that ownership Ady the ott Kad of

‘the lodging or the place where the meals are furnished is

not intended by Congress to be the crucial test, nor even

an essential element, of the meaning of ‘‘business prem-

ises’’. Rather, the emphasis is upon the place a duties

of the employee are to be performed.

This emphasis in defining ‘‘business premises”? i in terms

‘of the place where the employee performs significant duties

of his employment is likewise set forth in the pertinent

sore regulations, Sec. 1,119-1, wherein it is provided:

Court of Appeals Opinion th

SEC. 1.119-1, MEALS AND LODGING ‘FUR-

- NISHED FOR THE CONVENIENCE

OF THE nnnadpnimguat

wg *

rm ‘‘business premises of the employer’” a

steaai the place of veep soem of the SOT:

* *

(26 C.F.B., Sec. 1.119-1.)

While this Court is not bound by . Treasury oeitulaibond

where they are inconsistent with the revenue statute which.

they seek to interpret and implement, they must be sus-

tained unless unreasonable or plainly inconsistent with the ©

statute, and may, where long continued without substantial

change, be-deemed to have received Congressional approval —

and have the effect of law. Mc orrison v. United States, 355

F.2d 218 (C.A:°6,.1966). As stated in the case of Commis-

sto toner v. South Texas Co., 333 U.S. 496, 501:

: “This Court has many times declared that Sibaiaes

regulations must be sustained unless unreasonable and

. plainly inconsistent with the revenue statutes and

that they constitute contemporaneous constructions by

those charged with administration of these statutes .

which should -not be hiatiehaeate except for weighty

reasons.’’ © {

The phrase ‘‘on the business premises of the employer”,

as used in Sec. 119, has been the subject of judicial con-

struction in other reported decisions. In the case of United

States v. Barrett, 321 F.2d 911 (C.A. 5, 1963): the issue con-

fronting the Court was whether state highway patrolmen

'. were entitled to exclude from gross inteme the reimburse-

ment received by them from the State of Mississippi for

meals purchased at various locations .along the highway

while on oe The Commissioner there sought to contend

LA ERS AO 20 SUID Beso

re Court of Appeals Opinion

that ‘‘business premises’? was confined to the State Patrol

Headquarters. The Court concluded that since the ‘‘busi-

ness of the state law enforcement agency was not confined

to the patrol headquarters, but rather, it covers every road

and highway i in the State 24 hours a day every day’’, the .

value of meals taken along the highway while on duty was

excludable.

A’ similar issue involving the eaeiueion of the’value of

meals furnished a highway patrolman was presented in

the case of United States v. Morelan, 356 F.2d 199 (C.A.

8, 1966) with a similar result being reached. In affirming

the decision of the District Judge, reported at 237 F.Supp. ©

. 879, the Appeals Court concluded that restaurants near or

adjacent to highways were ‘‘on the business prenffses of

the employer’’ for the purpose of determining the exclud-

ability of the value of meals taken there by a highway ©

patrolman while on duty. |

Although the Court in each of the foregoing cases re- .

jected the Commissioner’s contention that ‘‘business prerh-.

_ises’’ would -be limited to premises owned or controlled by

the employer, the decisions are consistent with the view —

that the premises must be those upon which some portion _

of the employee’s duties were performed. In fact, the test

was expressly so stated in the case of United States Junior

Chamber of Commerce v. United States, 334 F.2d 660 (Ct.

-Cl., 1964). There the plaintiff had provided a home for its

national president. The issue confronting the Court was

as to:the excludability from gross income under Sec. 119

of the rental value of the lodging thus furnished. Having

-.. found as a fact that a significant portion of the president’s

' duties were performed at the home, the Court-held that the _

rental value ofthe home was not includable in the presi-

- dent’s gross income. In so helding the Court stated:

Pal eB! LNT RE PROT ERAOR FIR Ne

- Court of Appeals Opinion | : : la.

» “We think that the business premises of Section 119 7

-\\means premises of the employer on which the duties

- of the employee are to be performed.” 3

An, even more pertinent decision ‘to the issue now con-

_ fronting this Court is that of Dole v. Commissioner, 43 T.C.

697, as affirmed by the Court of Appeals for the First Cir-

cuit at 351 F.2d 308. The significance of the Dole case lies

not so much in its factual similarity with the present.case _

\ asin the fact that the decision of the Tax Court in the

Anderson case upon the issue of ‘‘business premises’ was

specifically rejected by the Court of Appeals. The exclud-

ability by employees under Sec. 119 of the fair rental value.

f Company-owned housing furnished for the convenience

of the employer was there. involved. In an opinion con-..

- Stated:

curred in by a majority of the Tax Court, that Court

‘There is still another, and equally compelling, reason

for holding that petitioners have failed to. bring them-

- selves within the purview of section 119. These com-

pany-owned houses were not located ‘on the business

premises’ of the Packard Mills. Congress has plainly

stated that the phrase ‘on the business premises’ gen-

erally means at the place of employment. See H. Rept.

No. 1337, 83d Cong., pp..18, A39 (1954); S. Rept. No.

1662, 83d _Cong., pp.-19, 190 (1954) ; and Conference '

Report, H. Rept. No. 2543, 83d Cong., pp. 26-27. We

think the phrase should be construed to mean either

(1) living quarters -that constitute an integral part of

the business property or (2) premises on which the .

company carries on some-of its business activities. We

doubt whether Congress ever intended section N9 to

apply to situations such as this, where the employee

does his work in one location and resides at another

location some distance away. Whatever may he sai

of the factual-conclusion reached in Charles N. Ander-»

son [Dec. 26,806], 42 T.C. 410 (1964), on appeal (C.A.

6, November 20, 1964), that the-residence of the motel

PSLOK EP SMELRL LL AIO RAOLEN 9 POLO OES RE Cpe Cage tayt TN ” SELLER a Ee

12a

_ Court of Appeals Opinion -

manager, being within ‘two short blocks’ of the motel,

‘was sufficiently integrated with the motel property as .

to be ‘on the business premises,’ the facts here do not

permit any such ultimate conclusion.’’

a concurring opinion.Judge Raum of the Tax Court

t on to explicitly disapprove of the Tax Court decision —

the Anderson case in the following terms: ;

“The matter probably would never lave reached: this

present state of apparent confusion and disagreement

among the’members of this Court were it not for the

unreviewed decision in Charles N. Anderson [Dec. 26,-

806], 42 T.C. 410. I think that Anderson is distinguish-

able for the reason articulated in the majority opinion.

But I also think that it is wrong and that it should be

overruled to put an end to the confusion that it has

oresteg.::) 3: rea > a -

‘‘The fact that the motel manager’s house in Anderson

was ‘only two short blocks’ (42 T.C. at.p. 415) from the

_ motel property should have been totally irrelevant. The.

house either was or was not ‘on the business premises’,

‘and-I can find-no basis in the statute to-stretch those.

premises ‘two short. blocks’, or ‘one short block’, or - .

even ‘one-half short block’ beyond the perimeter of

the motel property. Of course, if ‘two short blocks’ are

‘not fatal, it is easy to see how one miight»be tempted

to enlarge the distance to the one,mile involved herein,

“or, for that matter, two miles or five miles. The real

difficulty is that neither the residence in Anderson nor |

‘any single residence‘involved herein is ‘on the business _

premises’ of the employer. And in view of the mischief:

ad desi by Anderson'I think it should be explicitly

isapproved.”’ ” ;

The Court of Appeals in affirming, did so specifically.upon

the opinion of Judge Raum. - * - } : sf:

Each of the foregoing cases is consistent with an inter-

pretation of the phrase ‘‘on the business premises of. the

employer’’.as requiring that meals be furnished or lodging

be provided: at a place where the employee performs some .

Court of Appeals Opinion ae

significant witiga of his duties. That this is not‘a complete °

definition of the concept of ‘business prentises,’’ however,

may ‘be illustrated by the case of Boykin v. Commissioner,

260 F.2d 249 (C.A. 8, 1958). There a physican employed by

the Veterans Administration was assigned living quarters

in a residence located upon a Veterans Hospital grounds.

- While no: duties were performed by the employee at the

Eo residence, but rather at the hospital, no issue was raised :

_in the case but that ‘under Sec. 119 the lodging was upon the

‘hospital grounds and therefore upon the premises where

. the. employer’s business was conducted, ie., the hospital.

_ The Court accordingly saw no. occasion to raise the *‘busi-

"ness premises”? i issue, but rather the case went off upon the

‘meaning of other terms within the vanes which terms are -

not here in issue.

Having thus considered the eaniion of: the statute, to-

_ gether with-the legislative history, the Treasury regula-

tions, and the relevant case authority from other jurisdic-

-tions, while all the time: bearing in mind the rule of

statutory construction as hereinabove stated, this Court is

of the opinion that the phrase ‘‘on the business premises of

the employer,’’ as used in Sec. 119, mearis that in order for

_ the value of meals or lodging to be excluded from gross in-

come, the meals must be furnished or the lodging be pro-

_ vided either at a place where the employee performs a

| significant portion of his duties or on the premises where _

the employer conducts a significant portion of his business. -

-. Returning now to the decision of the Tax Court, we are

of the opinion. that. the Tax Court arrived at an erroneous

" construction of the phrase ‘‘business premises’’. It has con-

strued the phrase as requiring only that the meals be fur-

_ nished or the lodging be provided upon property acquired

by the employer from business motives, prévided that. such

property is located in the vicinity of or ‘‘within two short

7 ~\

a “Court of Appeals ss an

blocks’? of other sanele upon which the employer con-

ducts his business. As regards lodging, the ‘additional re-

- ‘quirement imposed by the statute to the effect that the

employee pe’ required to accept the lodging as a condition

of his, etiiployment is apparently included by the Tax Court

within® its. definition: of ‘‘business premiises’’,

To make ownership by the employer from business mo- q

_~.tives the test of a ‘‘business premises’’ is to ‘fail to provide

for instances of meals furnished or lodging provided on

non-owned premises, contrary to the expressed Congres-

sional intent, while at the same time opening wide a tax

loophole contrary to any expressed Congressional intent.

‘To make ‘two short blocks’? or nearness to other busi-

ness propegty of the. employer the test is to disregard the

word ‘‘on’’ as contained in the phrase ‘‘on the business

premises of ‘the , /employer’’, thereby rendering uncertain

that which is certain and Tequiring litigation in each.case to

determine what may be sufficiently : near ‘under the circum-

“. stances of the particular case. Had Congress so intended, it

would appear that it could readily have used the words ‘‘in

- the vicinity of’ or ‘‘nearby”’ or ‘‘close to”’ or ‘‘contiguous

° to’? or simitlar language, rather than say ‘‘on”’ the business

premises. ~+,

To make acceptance-by the employes as a condition of his

employment the test is to-fequire that which is elsewhere

expréssly required by the statute and render redundant the

phrase ‘‘on the: business’ premises of the employer’.

Examples, of course, can be given where ‘‘near’’ is so

nearly equivalent to:‘‘on’’ as to indicate an absurdity in

_ distinguishing between the two. However, this case does

not present such an absurdity. Moreover, there is an ele-

- “ment of. arbitrariness in the drawing of every line. The

drawing ‘of not otherwise unreasonable tax lines is a legiti-

mate function of Congress. When Congress drew cag line

. Court of ‘Appeals Opinion 15a

_ 80 ac to require that the meals be furnished: or the lodging

be provided ‘‘on the business premises of the employer”’,

it-is not the proper function of a court to disregard that

line and substitute a line of its own choosing.

‘The Tax Court'did not purport to find that any significant

portion of the taxpayer’s duties were performed Within the

residence provided for his use. Merely being ‘‘on call”?

would not of itself form a basis for such a finding. The ©

evidence is undisputed that the residence was located, upon

property separate and apart from the motel. The'duties of |

the employee were performed at the motel. The residence

therefore was not itself a business premises. The business

of the employer was located. at the motel. The residence

_ therefore was not on the business premises of the employer. _

Rather, the residence was provided and the meals were

-furnished upon a premises other than. the business prentises

of. the employer.

The decision of the Tax Court will be reversed and a.

judgment will enter in accordance with this opinion.

. -McAuusrer, Senior Circuit Judge, dissenting.

This is a petition by~the Commissioner of Internal

~ Revenue for review of a decision of the Tax Court.

There is’ one issue in this case: Whether a manager of

a motel, who is entitled to an exclusion from gross income

of the value of meals or lodging furnished to him on the

business premises of his employer, is entitled to such ex-

clusion if thé. premises furtiished to him for lodging, as a

condition of his employment, are on the premises of. the

street from the motel where he works—.

e would be entitled to the exclusion if he

were periittted to live on ‘the motel premises where he

rxed for several years before his employer caused him

to move, solely because the saint ‘could secure. more

- income from the motel.

nip the taxable years 1958, 1959, and 1960, Charles

16a ° ° Court of Appeals Opinion

Anderson, taxpayer, was employed as’ manager of the

Lincoln Lodge, a motel located in Columbus, Ohio. From

the time Lincoln Lodge was opened on July 1, 1956, and

until July 1957, Mr. Anderson, his wife and three children

‘occupied a two-room suite in the motel. In this case, Mrs. |

Anderson was joined as a respondent, but the real taxpayer ;

is Mr. Anderson, and, hereafter, instead of. referring to

husband and wife as taxpayers, it will be sufficient to refer .

to Mr. Anderson as the taxpayer.

Because of the need for more space and the value of the

rooms in the motel for guests, the Lincoln Lodge Corpora-—

tion, owner of Lincoln Lodge, required Mr. Anderson to

leave. the motel itself and reside nearby. His preference

was a two-story house already constructed, but, instead, the

owner of Lincoln Lodge selected the closest available lot

to the lodge and constructed thereupon a small one-story

dwelling for the use of Mr. Anderson, as manager, and his:

family. The dwelling. was two-short blocks from the motel.

_The immediate reason for the decision of the motel com-

pany in requiring this change of residence for Mr. Ander-

son, instead of having him arid his family live in the motel,

} owas economic, ‘since the motel could realize much more

. income through the renting of the rooms in the motel to

guests, and building a house nearby for the Andersons. The

evidence is clear that the taxpayer was required to live

in the house ‘furnished by the company as a condition of his |

employment as manager, and for the convenience of his-

employer. He was obliged to be available and on call

twenty-four hour’ a day for the.busirtess of the motel.

The Commissioner determined that the taxpayer had re-

_ eeived compensation. from his employer in the amount of

$6,120 by reason of utilities, groceries, laundry and the like,

Court. of Appeals Opinion | 17a

ein Mr. Siiaiais by his employer, as well as the fair

rental value of the house.

The Tax Court found that meals and eee furnished :

to Mr. Anderson while living in the house where he was

- obliged to reside by the company, were furnished for the

convenience of the employer and on the business premises

of the employer within the’meaning of Section 119. of the

Internal Revenue Code of 1954, and, accordingly, were ex-

cludable: from the taxpayer’s anne income. 42 T.C. 410

(1964) ©

‘Section 119 of the Internal eee Code of 1954: pre

vides: is, & ,

tethers shall be excluded from gross income of an

mployee the value of any meals or lodging furnished

im by his employer for the convenience of the em-

bine but only if— ‘

‘*(1) in the case of meals, the meals are furnished, .

on the business: premises of the employer, *-* *.

‘*¢2) ain the case of lodging, the employee is re-

quired to accept such lodging on the business premises

of his employer as a condition of.-his employment. rs

ee secking a review of the decision of the Tax Court, the

_ Commissioner insists that, because Mr. Anderson and his

' family were not residing in the motel, but in a house con-.

' structed for his use, as manager, on property nearby, owned -

by the motel company, the meals and: lodging furnished to

him at: such house, were not furnished on the business

‘premises of the employer.

As to whether the one-story dwelling, expressly built by

the. -employer.to house Mr. Anderson, as manager of the

motel, together with his family,- constituted business prem-

ises of the employer, there are, in our view, the Congres-

sional history, as well-as a number of adjudications which

183, . ~~ Court of Appeals Opinion.

support the decision of the Tax Court that such premises ia

were actually ‘‘business “premises”? of the employer. But,

before referring to those authorities; it is to be observed

that the words ‘‘business,’’ and ‘‘premises’’ are two words

of the most general meaning to be found in our language.

“‘Business”’ is a word commonly used to describe every ~

occupation in which men engage. Bennett v. Hebbard; 74

. N.H. 411, 68 A. 537, The word ‘‘business’’ in’ its broad

_ sense embraces everything about which one ‘can be. em-

. ployed, and, in its narrower sense, it signifies a calling for

the purpose of livelihood or profit. Easterbrook v. Hebrew

Ladies’ Orphan Society, 85 Conn. 289, 82 A. 561.

The meaning of the word ‘ ‘premises’’ is to be determined

by: its context. and is dependent on the circumstances -in |

which it is used. It is said that it has various meanings,

depending on the subject matter in connection with which

it is used. It has no fixed legal significance, and no definition

applicable to every situation. O’Connor v. Great Lakes Pipe

Line Co., 63 F.2d 523 (C.C.A. 8). ‘‘Premises’’ may mean a

room, shop, building or definite area. Robinson v. State, 108

' So. 903, 143 Miss. 247. The word is employed in various

senses in particular phrases. State-v. Almy, 32 RI. 415,

79 A. 962. ‘

Because of the various meanings of the term ‘business —

premises,’’ we have recourse, in our determination of its

meaning, first, to the Congressional history of. the section

of the statute in which it is used.

‘In the Report of the Ways and Means Committee of the

House of Representatives on Section’ 119 of the Internal

Revenue Code of 1954, it is stated: ,

- *Undér section 419, if meals or lodging (1) are

furnished at the place. of employment, and (2) are re--

quired to -be accepted by the employee at the place ©

<=,

‘Court of Appeals Opinion — 19a

of employment as a condition of his employment, the

value thereof shall be excluded from gross income not-

withstanding the fact that such meals or lodging will

be additional compensation to the employee. * * *.

‘‘The operation of this section may be illustrated by

the following example: —~ __ ; ie

“(1) A civil-service employee of a State is em-

ployed at an institution and is required, as a condition —

of his employment, to live at the institution in order to

be available for duty at any time. Under the applicable ~

State statute, his meals and lodging are regarded as a

part of the employee’s compensation. The employee

would nevertheless be entitled to exclude the value o

such meals and lodging from gross income. |

‘¢(2) - An employee of an institution is’ given the

choice of residing at the institution free of charge, or

of residing elsewhere and receiving an allowance of $30. .

per month in addition to regular salary. If he elects to.

reside at the institution the value to the employee of

the lodging furnished: by the employer will be includ-

able in gross income, because his residence at the insti- ©

tution ts not required as a condition of his employ- -

ment.”? (Emphasis supplied.) H. Rep. No. 1337, 83d

Cong., 2d Sess., 3 U.S.C. Cong. & Adm. News (1954),

4175, 4176. o . at :

In the Report of the Finance. Committee of the Senate

| _on Section 119 of the Internal Revenue Code of 1954, it

is stated;

‘The House and your committee has adopted pro-

visions designed to end the confusion as to the tax

status of\ meals and lodging furnished an employee by

his employer. Under both bills meals and lodging are

to be excluded from the employee’s income if they are

furnished at the place of employment and the employee

i hac. yap to meet certain other’ conditions specified.

Ow. | i

‘*(2) Changes made by committee :

‘‘Your committee believes that the House provision |

is ambiguous in providing that meals'or lodging fur- |

- nished on the employer’s premises, which the employee

20a in Court of Appeals Opimion

is required to accept as a condition of his employment,

. are excludable from income whether or not furnished

_ as compensation. Your committee has provided that the

- basic test of exclusion is to be whether the meals or

lodging are furnished primarily for the convenience of

the employer (and thus excludable) or whether they

were primarily for the convenience of the employee

(and therefore taxable).’’ (Emphasis yen S.Rep.

~ No. 1622, 83d Cong., 2d Sess., 3 U.S.C. Cong. & Adm.

: News (1954), 4649. a ie

_- Inthe detailed discussion of the bill in Senate Report, it _

_ is stated with reference to Section 119: :

‘(Under section 119 of the bill as passed by the House

if meals or lodging are (1) furnished at the place of -

employment, and (2) are required to be accepted by

the employee at the place of employment as avcondition ~~

‘ of the employment, the value thereof is excludable from

the employee’s gross income. Under section 119 as _ |

amended by your committee, there is excluded from the

- gross-income of an employee the value of meals or

lodging furnished to him for the convenience of his

employer whether or not such meals or lodging are *

furnished as compensation. In the case of meals the ~

exclusion is permitted only if the meals are furnished

on the business premises of the employer. In the case

. Of lodging the exclusion is permitted only if the em-

. ployee is required to accept the-lodging on the business

premises of the employer as a condition of his employ-

ment:’’? (Emphasis supplied.) S. Rep. No. 1622, 83d

ro a 2d Sess., 3 USC. Cong. & Adm. News (1954),

- the conference Report on the Internal Revenue Code

of 1954, it is stated, with reference to Section 119, as

follows: - ap setlist a

‘‘Amendment No. 38: The House bill provided that —

there shall be excluded from the gross income of an em-

ployee the value of any meals or lodging furnished by

the employer (whether or not furnished as compensa-

tion) but only if such meals or lodging are furnished .

ae)

—-

;

Court of Appeals Opinion . 21a

at the place of employment, and are required to be

accepted at the place of employment as a condition of

_ the employment. The Senate amendment provides that

meals or lodging furnished for the convenience of the

employer are excluded, but only if (1) such meals are.

furnished on the business. premises of the employer,

or'(2) the employee is required to accept such lodging

on the employer’s business premises as a condition of

his employment. The Senate amendment also provides

that in determining whether meals or lodging are fur-

nished for the convenience. of the employer, the pro-

’ visions: of an employment contract or of a State statute

fixing the terms of employment shall not be determi-

native of whether the meals or lodging are intended as

compensation. The term ‘business premises of the em-

ployer’ is intended, in general, to have the same effect

as the term ‘place of employment’ in the House bill.

* * * The House recedes.’’ (Emphasis i carrie H.

Rep. No. 2543, 83d%Cong., 2d Sess., U.S.C. Cong. &

Adm. News (1954), 5286. | ¥

In the aforementioned Conference Report it was care- .

fully explained that the ‘‘term ‘business premises’ of the —

- employer, is intended, in general, to have the same effect as

the term ‘place:of employment’ in the House Bill.’’ The

Conference Report also stated, by way of further.explana-

tion in this regard, that the business premises of the em-

ployer does not require the active conduct of the business —

of the employer thereat and then, most importantly, makes

the intent crystal clear when it declares: ‘‘For example,

lodging furnished in the home to a domestic servant would .

be considered lodging furnished on the business premises

of the employer.’’ (Emphasis supplied.) The foregoing ob-

viously indicates the latitude which Congress considered

must be allowed by the courts in making a determination as

to the construction of the term ‘‘business premises.’’ As

remarked by Judge Scott of the Tax Court in a concurring

opinion in Dole v. Commissioner, 43 T.C.-697, the changes

made by the. Conference Report, above mentioned, with

22a | Court of Appeals Ciitiiies

respect to the term “on the iaindes premises,”’ apply not

only to lodging ‘‘at the place of employment,’’ but glso to

_ a lodging which is ‘‘business premises’’ of the employer

because it is so vital to the operation of such employer’s

_ business that an employee live at a particular location, that

_ the employer supplies the dwelling at that location spe- |

cifically for the purpose of having the employee live therein

in order to enable the employee to Brvpersy ndsaiaes the

. duties of his employment.

The Tax Court, in its opinion in the snstant case, found

that the house in which the manager of the motel was re-

quired to live with his family was business property. of the

motel, ‘‘and in this meaning of the term ‘business premises’

_ was a part of: the ‘business premises’ of the. petitioner’s ©

employer.’’ The president of the motel testified that he con-

sidered the house which was built: for the manager and his

_ family a part of the business premises of the motel. —

The important consideration in this case is that, as far:

_ as Section 119 is concerned, Congress did not put geo-

graphic bounds on the business premises of an employer..

In Morelan v.- United States, 237 F.Supp. 879 (D.C.

' Minn.), Chief Judge’ Devitt had occasion to rule on the

application of Section 119 of the Internal Revenue Code of

1954. In that case, two Minnesota state highway patrolmen

brought a suit fer the refund of income taxes assessed, and .

_ paid by them. The taxes were levied on the three-dollar-per-

day subsistence allowance received by. the patrolmen for

each working day as reimbursement for meals purchased,

as required, in public restaurants adjacent to the highway

.which they patrolled. Judge Devitt held that the allowance .

- was excludable as representing the value of meals furnished

for the convenience of the employer. He further held that

the ‘‘business premises’’.of the State of Minnesota, for the

purpose of determining whether the three-dollar-per-day

Court of Appeals Opinion Coe

subsistence allowance received by the patrolmen for reim- -

.. bursement for meals purchased as required in public res-

taurants adjacent fo the road, extended all. over the State

and particularly to the highways where the patrolmen

worked. In his opinion, Judge Devitt said:

“The defendant’s contention that the subsistence al-

-lowance is not excludable under §119 because the meals —

were not consumed ‘on the business premises:of the em-..

ployer,’ while theoretically arguable, doesn't make

much sense because ‘the business premises’ of the State .

of Minnesota. extend over all of the State and particu-

_ larly to the highways of the State where these plain- _

tiffs worked. United States v. Barrett, 321 F.2 911,

Sth Cir. (1963).?’ (Emphasis supplied. )

The decision of the Court of Appeals of the Fifth Circuit

in United States v. Barrett, supra, above quoted and relied

upon by Judge Devitt in United States v. Morelan, supra,

and involving the.same question, was attacked by the.Gov-

ernment as completely erroneous in its brief filed on appeal.

in the Morelan case; jand the Government, on appeal,

argued that the Morelan case, involving the exclusion under

Section 119, from gross income of a state highway patrol-

man for meals purchased while in duty status. in. public

restaurants adjacent to the highway, was to be decided

according to the same. rule of law that governed deducti-

bility of expense for: food or lodging of a supervisor who

was required, as a condition. of employment, to. live a mile |

from his employer’s.mill in a company-owned house, citing

_ Dole v. Commissioner, 43 T.C. 697, affirmed: by the First

Circuit in 351 F.2d 308.

We go into some detail with regard ‘ the iisuelncs since

we consider that the Morelan case from the Kighth Circuit

and the Barrett case from the Fifth Circuit are'the author-

_ ities that are not only correctly. decided, but: also support

the decision of the Tax Court i in the instant case; .and. we

24a. - "Court of Lida Opinim 5

review the Dole case, as affirined on appeal by the First

Cireuit, since it is the chief authority relied, upon by the

government in seeking to. reverse the decision of the: Tax

Court in the present controversy. |

This calls for some consideration of the arguments of the

Government in which it sought to convince the Court of .

Appeals in the M orelan case that, because the state highway.

patrolman consumed his meals near or adjacent to the high-

way, on private premises of a restaurant, the cost of such

meals was not exclt dable under Section 119, because they

were not consumed bn the ‘‘business premises of the em-

” ployer;’’ and it also dalls for discussion of the Dole case on

- which, as has been said, the Government chiefly relies.

. . Aceording to a narrow, technical construction of. Section

119, a private restaurant on‘private premises at-a distance

of a block, or half a block, from the highway could not’ be

interpreted as being ‘‘on, the business premises’’. of the

_ State police department, or ‘‘on the business premises’’ of

_ the State of Minnesota. But Barrett and Morelan decided

directly contrary to such a construction; and, since those

cases were decided by the Courts of Appeals, and no peti-

_ tions for writs of certiorari were requested, a conténtion,

at the present time, that those cases were wrongly decided —

would be unconvincing, not only because-of the persuasive

_ Yeasoning in those opinions, but also because of the fact

-, that no attempt was ever made to seek review. of them.

. However, we revert to the’ arguments and reasonitig’ of

f the Government in thé Morelan case, which are identical

to the reasoning it pursues in the instant case. .

In ‘its brief on appeal in M orelan, the Government con-

tended :

“The Distriet Court 2 in relying upon United

States v. Barrett, 321,F.2d 911 (C.A. 5th), to hold that.

' meals purchased by the vaxpeyers’ [state highway

Court of Appeals Opinion 25a

' patrolmen] at restaurants near or adjacent to high-

Ways were consumed ‘on‘the business premises of the

a within the meaning of Section 119. The

. history of the convenience of the employer rule from

1919 to the present time shows that even if it could

be argued that the highways constitute’ the business |

- premises of the State Patrol for other purposes, never-

. theless it never has been intended that an employer’s |

premises should include numerous commercial restau- |

rants selected by him for purposes of Section 119. In-

stead, the rulings and Regulations referred to, supra,

have confined an employer’s premises for purpose of

Section 119 to a single b yne such as a hospital where

“an employee .is required to remain and take his meals. .

_ during meal hours. or a home in which a domestic

servant is required to eat. :

‘‘Congress manifested an. intention to restrict the

places where’ an employer furnishes meals or lodging’

when it enacted Section 119. As we have pointed out,

the House version of Section 119 required that, to

obtain an exclusion from gross income meals be fur-

nished’ and the employee be required to accept them

‘at the place of employment.’ See H. Rep. No. 1337

supra, p. 18 (3 U.S.C. Cong. & Adm. News (1954). 4017,

' 4042). The Senate substituted the phraseé ‘on the busi-

. hess premises of the employer’ in place of the House’s

language, to minimize any confusion that meals and

‘ lodging must be furnished at the specific place where

the employee is mor Pe See uy? No. 1662, supra, _

- pp, 19, 190-191 (3 U.S.C. Cong. & Adm. News (1954)

21,-4649, 4825, 4826). * * * ! es

ey ‘*In any event, it is clear that the private restaurants

‘/ ~~. selected by the bar tgho are not located on the busi-

ness premises of the taxpayers’,employer. Each tax-

sya patrolled highways within an approximate 10:to —

5-mile square station area and selected a restaurant ~

in that area in which jhe desiréd to eat (provided the

_ . restaurant met certain minimum standards). It is diffi-

cult to conceive, as the Fifth Cireuit-held in United

States v. Barrett, supra, that the business’ premises of

a state patrol should encompass every road and high-

_ way in the state 24 hours a day, seven days a week,

merely because the patrol is responsible for maintdin-

;

264

Court-of Appeals Opinion

ing State laws and safety on. the highways (R: 45-46).

_ The fact that the patrol’s duties relate. to the high-

ways should not confer any.special status upon ‘such ~

highways so as to include them with the term ‘business

remises of the employer’ for purposes vf Section 119.

imilarly, the fact that a metropolitan paws force is

responsible for maintaining law and or

within an ertire-city, or a sheriff is similarly respon-

* ° sible for an entire county, should not make an entire

city or county the business premises of the city police

_ force or the sheriff’s office for purposes of Section

+. the Morelan case:

. Barrett,.321 F.2d 911 (C.A. 5th), waongly held that -

meals purchased at restaurants near or adjacent to.

MA 0335

The Government further argued in its brief on appeal in

‘The government contends that United States v.

highways were consumed ‘on the business premises of

the employer’ within the meaning of Section 119. Such

a holding emasculates the language and purpose of

the statute. by providing very few, if any restrictions as

. to what comprises an employer’s premises. *.* *

“The taxpayers have overlooked the language used ‘ 3 a

.. by the Government with respect to the substitution by

- the Senate of the term ‘business premises of the em-

zs Bayh in place of the term ‘place of employment’ used .

* by the House. The Government’s brief points out,

clearly we thought, that this change:in language was

not intended to effect any substantive change in the

statute but merely to cause less-confusion as to the

extent of an employer’s business premises. Dole v.

Commissioner, 43 T.C. 697, cited by Government on

this point, has been affirmed per curiam by the First

Circuit on October 14, 1965: (65-2 U.S.T.C., par 9688):

as follows: ‘Judgment will be entered affirming the-

_° . decision of the Tax Court on the. concurring opinion

~. ployer’s mill. The company to |

_ pany-owned. houses located approximately one mile

of Judge Raum. * *:* 43 T.C. No. 55 (2/19/65).’ In -

that case the nature of the taxpayers’ supervisory jobs

required them to live in close hg osemy to their em-

SSS Ee een

er and safety.

them to live in com- .

Court of Appeals Opinion — 2

from. the mill. The majority opinion disallowed an

exclusion for the value of the lodgings furnished to the ~

taxpayers on the ground that, although the houses were

furnished because of the taxpayers’ employment, occu-

pancy was not necessary for the proper performance of

their duties. The majority opinion also concluded that

the houses were not sufficiently integrated with the mill

property as to .be on the business premises.: Judge

Raum’s concurring opinion, in which two other judges

concurred, decided the case solely on the business

premises. point,.and set forth strict tests as-te—-what-

’ constitutes such premises-for purposes of Section 119.

Dey ac RPE

= % his opinion states as follows (43 T.C., pp. 707-

09) :

: ‘The furnishing of tax-free food and lodging to

- corporate officers or other employees was suscep-

tible of abuse, and the tests applied to determine -

. the tax-free character of the food or lodging were

unsatisfactory; accordingly, section 119 was en- -

acted in the 1954 Code to spell out with particu-

larity the restrictive conditions under which such ©

exceptional tax treatment would be permitted. One ©

of those conditions is: that the lodging must be

‘fon the business. premises’’ of the employer. The ._

Statute does not say ‘‘at some convenient or rea-

. -sonably accessible’’ place; it does not say ‘‘in any

nearby building’’ owned by the employer. These

words mean what they say and should not be given

any strained or eccentric interpretation so as to ~

frustrate what the Legislature obviously tried to .—

achieve. — ' ie pula

‘* * * To construe the statute otherwise would

be to dispense entirely with the requirement in sec-

tion 119. that the lodging be furnished ‘‘on the busi-—

ness premises of the employer’’; for one could

- argue with equal persuasiveness in every case that

the house is on the business premises where the

other corditions of the statute are satisfied, ~

-namely,. where the lodging is furnished for the

convenience of the employer and is required as a

condition.of employment. If compliance with these

latter two requirements is sufficient to justify char-

“ ‘

Ri FORRES ME Se IO LE SGT CLI EL UE LE LNB GON LLIN LOBE LED DIODES DLE OELG OOTE of via

a - = --~ + cites Sa eae - i a lease are < ote

28a Court of Appeals Opinion

acterizing the house itself as ‘‘business premises’’

and thus: to make the exemption applicable, the

* third condition, as to ‘‘business premises,’’ would

become wholly meaningless. I cannot believe that

Congress intended any such futile result, and it

seems clear that the condition relating to ‘‘busi-

ness premises’’ was meant to have independent

operative scope. It is also plain to me that Con-

gress used that term in the normal sense as re-

ferring to the actual conduct of the employer’s

business and not in’ some esoteric sense relating

to the purpose for which the property was held.’ .

“This reasoning is equally: applicable to the present

‘ease.”’ ~~ ae . . “4g

‘In other words, thé Government, on appeal, in the Morelan

ease, contended that a decision denying a deduction to an

‘employee who lived a mile away from the employer’s mill .

in a company-owned house, the occupancy of which was not .

necessary for the proper performance of his: duties, was

authority for denying deductions to a highway patrolman

for meals purchased at restaurants near or adjacent to

highways, on the ground that they were’not furnished by

his employer ‘‘on the business premises of his employer.’’ |

- Such a narrow construction of the statute by the Commis-

sioner in the Morelan case is, in our view, parallel to the

construction of the statute sought by the Commissioner in —

the instant case... -

To reverse Judge Devitt’s decision in Morelam, allowing

. exclusion from gross income, under Section 119, to Minne-

sota highway patrolmen, for meals furnished at restaurants

adjacent to the highway, the Government therefore sought,

on appeal, to show that United States v. Barrett, supra,

was wrongly decided and, in doing so, based its chief re-

liance on the language used in the concurring opinion of

Court ‘of Appeals Opinion

Judge Raum in Dole v. Commissioner, 43 T.C. 697, hereto-

fore quoted and later to be discussed.

However, on the appeal from the Decision of Chief J ile

Devitt, the United States Court of Appeals for the Eighth”

Circuit, in United States v. Morelan, 356 F.2d 199 (C. A. 8),

gave short shrift to thé narrow construction of the statute

sought by the Government. Without discussing or. taking’

any notice of the language of the Dole case (on which the

Government relied and from which it extensively quoted in

its brief on appeal), the Court of Appeals affirmed the

judgment of the District Court, holding that restaurants -

near or adjacent to highways are ‘‘on the business premises

of employer”’ for the purpose of determining whether sub-

sistence allowance received by highway patrolmen ex-

. pended, ‘in part, for meals taken at such restaurants was

excludable under Section 119 of thé Internal Revenue Code

of 1954; and, with reference to Judge Devitt’s ‘opinion,

above usted Chief J Tudge Vogel, speaking - -for the court,

. said:

“Tt mais seem to be pe tently obvious iat restau-

rants near or adjacent to highways are, in th.s case, ‘on

the business premises of the employer’ as required by

§119 of the Code. In United States v. Barrett, 5 Cr.,

1963, 321 F.2d 911, it is stated at page 912:

diss iy Cisninicaiona’e takes too narrow a view of 7

_ what constitutes the -‘‘business premises’’ of the

Mississippi Highway Patrol. The major ‘‘busi-

ness’’ of this state law enforcement agency. is

obviously not confined to isolated. station houses ;

‘rather,.it covers every road and highway in the

state twenty-four hours a day every day. In view

of the special nature and functions of the highway

trooper’ s work, it is.unrealistic to treat the em-

ployer’s place of business as limited to the state.

patrol headquarters. This criterion, Eanesyers, is

30a Court of Appeals. —

not decisive against the exchuidsbility of the *s sums

here in question.’

‘Congress did not put geographic ary on the

business: premises Of an employer. ” pene sup-

plied.)

_ It has been said that the Morelan case bears no similarity

‘ to the instant case since the Morelan case, involving state

highway patrolmen eating at private restaurants on private

premises adjacent to, or near, the highway, holds that such

patrolmen consumed their'meals ‘‘on the business premises

of [their] employer,’’ whereas, in the present case, it is .

said that Mr. Anderson does not have his meals on the busi-

ness premises of his empleyer. Although he is required, as

manager of the business of his employer, to live on prem- ~

ises as close to the motel as can be secured by the employer,

for his own convenience—and for Anderson’s proper dis-

- charge of his duties as manager of his employer’s motel—

it is argued that he does not consume his meals on the

‘business premises” of his employer, because the ‘‘busi-

ness premises—the motel—are separated a short distance, —

geographically, from the premises supplied by the em-

_ ployer; that such premises therefore are only ‘‘close to”’

or ‘‘nearby”’ the motel; and, since such meals are not con-

sumed “‘on’’ the business premises of the employer, they

are not excludable under Section 119. But, if this strict

construction were applied to Morelan, it would have been .

held that the highway patrolmen were not consuming their

meals ‘‘on’’ thé business premises of their: employer when

' they were eating on the private premises, a block, or a half

a block away. from the highway. This was what the Govern-

ment contended in the Morelan case—that the meals were

not consumed ‘‘on’’ the premises of the employer; and such

_ aconstruction was held erroneous by the District Court and

os wit

Court of = Opinion : 3la

| the Court of Mets in thet: case, as eras too narrow. If. .

we approve the Barrett and Morelan cases,. there is no

reasonable way of avoiding affirmance of the Tax Court in

the instant case, unless, as Chief Judge Vogel expressed it

in Morelan, quoting from Barrétt,.‘‘too narrow.a view’? be

taken as to what constitutes ‘*business premises of the em-

ployer.’’ | |

There are other cases which bear upon the point in issue.

In Boykin v. Commissioner, 260 F.2d 249 (C:A. 8), a phy-

sician, employed by the Veterans Administration as Chief

of Professional Services at the Richmond, Virginia, Hos-

pital, and at the Veterans Hospital at Lincoln, Nebraska,

was assigned living quarters on the employer’s premises.

The living quarters consisted of a house on land owned by

the Government néar the hospital. There was no question

that although the house was separate from the hospital, the

physician was considered as living ‘‘on the business prem-

ises’’ of the hospital; and, apparently the Commissioner

never contemplated raising the question that the house, .

separate from the hospital, was not included in the business

” premises, although no hospital work or hospital ‘‘business’’

- was performed on the premises where the doctor lived.

The foregoing case is authority for the proposition that

if an employee is ‘required to live on the business premises —

.of his employer, the statute does not envisage that any

duties of the employee be performed in a house in which he

_is obliged to live as a condition of his employment, which

is at a slight distance from the: ‘building where such duties

- are actually performed, in order. that the re benefit

from the tax exclusions of Section 119.

In United States Junior Chamber of Commerce v. United

_ States, 334 F.2d 660—a somewhat different case, a house

32a Court of Appeals Opinion

was furnished by a national eieiiiiiiin as a lodging for

its presidents who were elected for a termi of one year, and

who came from all parts of the country, and who, durings

one year in residence, were away half the time. The court

held that although a.president used the house as his private

-. - home for himself and:his family during his term of office,

. his business required staff meetings and official entertain-

ment, and he frequently worked in the home and entertained

there at night, and that, therefore, he was lodging, and his

_meals were furnished to him on the business premises of -

- his employer and for the latter’s convenience. In its de-

cision, the court said that a domestic servant who lives in

“the residence of his employer and is required to be avail- - .

_able for duty at any time, is entitled to exclude the value.

of his lodging, even though the residence may or may not

be the employer’s ‘‘business premises;’’ and, in support.

of its holding, the court cited the decision of the Tax Court

‘in Anderson v. Commissioner, 42 T.C. No. 25, the instant

case now on appeal before us. The court also observed that

the Tax Court had decided in John L. Nolen, P-H Tax Ct.

Mem. para. 64,099 ( 1964),-that a medical receptionist, who-

was required to live on the second floor of the office of

her employer so that she could answer. telephone calls -

from patients and pharmacists after the normal office hours

_-and perform other duties on the employer’s premises, in-

cluding storing and caring for perishable médicines, was

entitled to exclude the fair rental value of the second-floor

_- lodging from her gross income on the basis that she was -

. living on the ‘‘business premises’”’ of her employer. |

* In United States Junior Chamber of Commerce v. United

; ‘States; supra; the court stated: ‘‘ We think that the business

preinises of Section 119 means the premises 0 of the employer

on which the duties of. the employee are to performed. 24

’ MT es” attest 1X BAIT ANY Geter x Oo a ere pore, Gene ® oA Pe

Court ne Appeals Opinion aos 33a

In the foregeitie case, the employee was absent from the

employer’s premises from time to time for a total of half

the year; he was using the premises as his private home for

himself and his family, but it was his headquarters for his .

employer’s business while he was there, and he worked at -

such premises and used them for official entertainment for

the purposes of the United - States fhetonucsnd Chamber of

Commerce.»

In the instant case, Robert Anderson was on twenty- four-

ae hour call whether he was at the motel or at the premises

furnished by his employer; and his duties, at all. times,

were to oversee reservations made by guests; to handle |

complaints made by them; to supervise the sale of food and

beverages; and to handle any complaints in connection with

. the service in the restaurant. At times, he also entertained

motel guests oh the premises furnished by his employer in

connection with the business of the motel company. The

house was two minutes away from the motel lobby. During ©

the time he was on the premises furnished for him by his

employer, he, being on twenty-four-hour call,’ necessarily.

received, as he did at the motel, complaints of guests, ques-

‘tions on reservations, complaints on restaurant service, or

inquiries with regard to the supervision of the foods and.

‘beverages; and, because he was.on twenty-four-hour call,

he was performing services for the motel at the premises’

furnished. to him, whether he disposed of such matters by

telephone or whether, upon call, he went to the motel to.

adjust such complaints, or to take care of the services in

question. = : .

It clearly appears, in the instant case, that being | on:

pot -four-hour-a-day call was part of the business of Mr..

as manager of the motel; and it can also reason-

aby ree that he was performing this 4 of his -

34a Court of Appeals Opinion ~ - J

- business while he was lodged by his employer in the dwell-

. ing provided for him for that expressly understood pur-

pose, as well as when he was at the motel. As in Morelan,

the premises furnished to Mr. Anderson must be considered

business premises-of his employer, where he awaits éalls on

his employér’s business, and on which he performs his .

duties for his employer, in the same sense, if not to the

same extent, as he performs those duties in the mofel itself.

To hold that Mr.’ Anderson is not entitled to exclude ©

from his gross income the expenses of his food and lodging _

-in this case, because the house in which his employer re-

- quired him to reside, while on twenty-four-hour-a-day serv-

ice, was two short blocks from the motel property, leads to

curious anomalies. The motel was located on a large tract

of land owned, or leased, by the employer. It is easily con--

ceivable that the employer could, in a similar case, build

_ the same small type of dwelling house for his manager, —

distant the equivalent of two short blocks away from the

motel, but still on the property on which the motel was

located. This apparently would satisfy the Commissioner

that Mr. Anderson was entitled to the exclusion provided

by Section 119. What difference would it mak that the

employer found ‘it best to keep the property on which the’

motel was located, free of the construction of small dwell-

‘ing houses? What difference would it make, if, not wishing

a small house on the area on which the motel was located,

the employer purchased premises two short blocks away '

from the motel, in an area other than that on which the

motel is standing? In either case, Mr. Anderson would be

lodged in a house, two short blocks distant from the motel..

_. The Commissioner agrees that, Mr. Anderson, in the first

' ease mentioned, would be entitled to the statutory exclu-

sion, but that he would not be so entitled in the latter‘case.

ae both cases, he would be on sueiey tose tnene- tay call.

OAL ATTN ht de ERENCE $Me LCN LL OSE NEE RN BNO ERS sg VENEER RCH I Pt ee ee 7

. Court of Appeals Opinion [ me 35a

We feel that the construction of the statute contended for,

by the Commissioner is. based on an obsession with words;

is narrow and extreme; and is unjustified by the purposes.

of the statute, and contrary to the intention of Congress.

Suppose ‘it were impossible to build the small house on

the motel premises because of the fact that the motel. was

built to cover the entire area owtied by the employer, but

that, immediately across the street, the employer built such

. a house for the manager, and ‘that the manager, in such a

house, would be nearer the lobby and business office of the

‘motel than he would be if he. were lodged ‘ht the far end of

the motel structure itself. Would the manager, Mr. Ander-

_* son, in such a case, be denied the exclusions,from gross

income -under Section 119 because he was not- lodged -on -

the business premises of the employer? Tg hold that, under

such circumstances, he would be denied the exclusions,

seems to border on-the absurd. .

‘We come then to the case of Dole v. Commissioner, 43

- 'T.C. 697, afterward affirmed by the Court of Appeals for

the First Circuit in 351 F.2d 308.

The affirmance of the Dole case by the Court of Appeals

came subsequent to the hearing of ag raaervaeh in the instant

case on appeal.”

The facts in the Dole case are recited in the a

' ment’s brief in the Morelan case, heretofore quoted in this

opinion. Ante at. 14-15. The Tax Oourt’s holding in the

_ Dole case was clearly distinguishable from the instant case.

It determined only that supervisory employees of a cor- »

poration, engaged in manufacturing cloth, who were re-

quired by their employer to live in: company-owned houses .

a mile from the mill, were not entitled.to exclude from their

gross income the fair rental value of their lodgings, under

Section 119, on the ground that the nature of/ their jobs .

‘made it necessary to live in close proximi the mill.

icp RIE HRN A ANP SIZE BBE NO TEE BLUMER A RPTL SERINE ALA SERIE NES IO PEST MEENA REI GS SEN

; . ; yer Soe ass wil _e ‘ da he dO Mi ws

36a : _ oe of Appeals Opinion

It will be-seen at once that the Dole case.is ve the instant

case, although, in some particulars, there is a similarity.

However, Judge Raum, of the Tax Court, filed a concurring

_ opinion in the Dole case in wich, at its conchision, he stated

tHit, the instant case of Anderson v. Commissioner in the —

Tax Court should be overruled. This was not necessary to

decision, for Judge Raum expressly stated that Dole was

distinguishable from Anderson; his statement in the Dole

case that Anderson should be overruled was merely dicta;

but, while soneurring in the prevailing opinion ; in Dole, he

declared : et

he The matter probably would never havé ‘reached this

present state of apparent confusion and disagreement

among the members. of this Court were it not for the

unreviewed decision in Charles N. Anderson, 42 T.C.

- 410. I think that Anderson is distinguishable for the

reason articulated in the majority opinion. But I also

think that it is wrong-and that it should he overruled

to put an end to this confusion that it has created.

_.“ The fact that the motel nidnager’s house in Ander- ~

son was ‘only two short blocks’ (42.T.C. at 415) from

the motel p pty should have been totally irrelevant,

The house either was or was not ‘on the business prem-

_ises,’ and I can find no basis in the statute to stretch

those premises ‘two short blocks,’ or ‘one short block,’

or even ‘one half short block’ beyond the perimeter of

the motel property. Of course, if nen short blocks’ are

not fatal, it is easy to see how.one might be tempted ~

to enlarge the distance to the 1 mile involved herein,

or, for that matter; 2 miles or 5 miles. The reat diffi-.

culty is that neither the residence in Anderson nor any

single residence involved herein is ‘on the business

premises’ of the employer. And in view of the’ mischief

generated by Anderson I think it should be ) eaepaaltty

PEEL. ?

Iti is to be observed Shines the foregeing that Judge ele

stated that, in Anderson, he could find no basis for stretch-

ing the businéss premises ‘*two short blocks’’ or ‘‘one short

“eo F : =

‘

be,

Court of Appeals Opinion 37a

block,”’ or even ‘‘éne-half short block’’ beyond the perim-

eter of the motel property. This conclusion is-based ‘Upon,

the strict construction that, as Judge Raum said, ‘‘The »..

house either’ was or was not ‘on the business premises.’’?-

_* In regard to the foregoing, it is interesting to note that, -

in the record of the Morelan case, it appears that one of the

‘members of the state highway patrol, whose case was joined

‘with that of Morelan, gave as an example of the procedure.

used when a highway patrolman would have his meals’ near |

the highway, the following: | ag

‘We park our patrol car out where it could be seen. In

_ fact, we had special orders when we used to work an.

_ area assignment on Highway 7, we had to are the car

out next to the road and walk about a quarter of a block

to the restaurant, but before we got. out of the patrol

ear you would call the dispatcher and<say, ‘10-10, —

please,’ and then we would give the telephone number ~

of the restaurant where we stopped at so you could

be called at this restaurant.’’ (Emphasis supplied.) _

In Morelan, the District Court te Court of Appeals

found: it to be. of no consequence ffat the premises, on

which the highway patrol consumed their meals, were at the .

police barracks or on private premises—whether adjoining

the highway or a quarter of a block, or, implicitly, ‘‘two.

_ short blocks,’’ away from the highway. They avoided the

strict Construction adopted by Judgg Raum, saying the con- .

tention that the patrolmen’s meals ere not consumed ‘‘on

the business premises of the emplpyer,’’ ‘‘while theoreti-

cally arguable, doesn’t make much ‘sense”’ and that it was..

unrealistic, in view of the highway trooper’s Work, to treat :

the employer’s place of business as limited to the. state

patrol headquarters. In other words, they considered the

construction contended by the Government in Barrett and

Morelan as too narrow, and liberally interpreted.the statute

to carry out what was considered the intent of Congress.

o med

38a. Court of Appeals Opinion

: yn

| In our comments-on_ Judge Raum’s views, while we dis-

_ agree with his conclusions, can on] admire his opinion

for its force, clarity and judicial qu . In the concurring

* opinion in the Dole case, calling for reversal of the..Ander-

son case in the Tax Court, Judge Raum secured the-ad- a

hesion. of two other judges out of the eleven judges ape:

ticipating.

However, on appeal to'the al of ‘Appeals for the First

Circuit, that court, as heretofore stated, affirmed upon the |

concurring opinion of Judge Raum ina per curiam’opinion, :

«Judgment -will be entered ‘affirming the heticin of

o Tax Court on the concurring ete of. Judge

aum. ine

We have difficulty in perceiving why the per curiam of —

‘the! Court of Appeals for the First:Cireuit in Dole was

based. solely on the concurring opinion of J udge Raum in

the decision of that case in.the Tax Court. The Court of

Appeals could well have affirmed the decision of the Tax

Court in Dole, without reference to the concurring opinion

of Judg: Raum, which called for the reversal of Anderson,

for, as Judge Raum said, Dole was distinguishable from

Anderson. Anderson was, at that time, on appeal to this

court and rested on. entirely different facts than those in

Dole. The decision of the-Dole case, either in the Tax Court

or later in the Court of Appeals; would have no bearing on.

Anderson. We cannot accept the Commissioner’s view that.

the decision in Dole in the Court of Appeals for the First

that the Tax Court’s opinion - and decision in Anderson

: should be overruled.

_ Circuit is persuasive authority, that the instant case should —

be reversed, on the reasoning alone of Judge Raum in -

_ his concurring opinion in Dole, and on his dicta in that case

et ee

Court of Appeals Opinion 390

While we — great vominot for the views of the First -

Circuit, there appears to be in its opinion in the Dole case,

insufficient development of the issues, and the resolution of

-the problem involved.lacks the thrust, persuasiveness, and

marshalling of argument necessary to overcome the well-

‘reasoned conclusions of all but three of the judges of the

~ Tax Court, whose, views were cogently set forth in three

different opinions, supporting their prior decision in An-

_derson, as well as the Tax Court’s decision itself in Ander-

son, the opinion of ti» Court of. Appeals in Barrett, and

both the District Courw’ s and ‘the Court of- Appeals: de-

cisions in Morelan.

The words and phrases. employed in a statute should be

given a reasonable and sensible construction to carry out,

if possible, the intention of the legislature. In our opinion,

_ the Conference Report with reference to Section 119 of the

Internal Revenué Code of 1954 makes clear what such rea-- |

sonabie and ‘sensible construction was intended, and the

casés of Morelan v. United States, 237 F.Supp. 879; United |

States. v. Morelan, 356 F. 2d 199; United States v. Barrett, ~

321 F.2d 911 (C.A. 5); Boykin v. Commissioner of Internal

Revenue, 260 F.2d 249; United States Junior Chamber of .

Commerce v..Umted States, 334 F.2d 660, and the Nolen. -

case, decided by the Tax Court, all heretofore discussed,

-. ¢onfirm that intent, and seem clearly to call for an affirm- —

ance of the findings and opiiion of the Tax Court.

. For the reasons stated in this dissenting opinion, it is my

' * view that the decision of the Tax Court should be affirmed

in accordance with the findings of fact one the ae of

Judge § Seott, 42 T.C. No, 410.

a “oo Se _ IRS Regulation

e UNITED STATES COURT OF APPEALS

- FOR THE SIXTE CIRCUIT

No. 16389. .°- .

aula Dec. 23; 1966) |

‘COMMISSIONER OF INTERNAL REVENUE, |

Pétitioner,

vs.

CHARLES N. ANDERSON AND. GRACE M.,

AN DERSON,

Respondents.

BEFORE: CELEBREZZE, Cir cuit ‘Judge, MeALLIS-

2 TER, Senior Circuit J i and ae |

_ Distriet J udge.

On Petition to Review a decision of the Tax Court . of

the United States. Sah, er —

This cause came on to be heard on the transcript of réc-

ord from the Tax Court of the United States, and was

‘argued by counsel.. | )

ON COON SIDERATION WHEREOF, It is now here

Ec ordered and adjudged by this court that the decision of

the said Tax Court in this cause be and the same is hereby

reversed and the cause remanded for entry of a judgment |

in accordance with the opinion of this Court.

No costs awarded. Rule 23 (4).

Entered. to order of the Court.

| /s/ Cart W. Reuss,’

% . , BAS an ' Clerk.

IRS Regulation Ta

APPENDIX B

_-IRS REGULATION

| Section 1.119-1 of the Code of Federal Regulations.

§1. 119-1. Meals and lodging furnished for the conveni-*

ence. of the employer.—(a) Meals—(1) In/ general. The

value of meals furnished to an employee by his employer

shall be excluded from the employee’s gross income if two

‘tests gre met: (i) The meals are furnished on the business

: premises of the, employer, and (ii) the meals are furnished

for the convenience of the employer. The question of

whether meals are furnished for the convenience of the

employer is one of fact to. be determined by analysis of all -

the: facts and circumstances in each case. If the tests de-

scribed ‘in subdivisions (i) and (ii) of this subparagraph

are met, the exclusion ghall apply irrespective of whether

- under an employment coutract or a statute fixing the terms

' of employment such meals are furnished as compensation. —

(2) Meals furnished without a charge. (i) Meals

furnished by an employer without charge to the employee

will be. regarded as furnished for’ the convenience of the -

_ employer if such meals ate furnished for a substantial non--

compensatory business reason of the employer. If an em-

ployer furnishes meals as a means of providing additional

- compensation to his employee (and not for a substantial |

noncompensatory butsinéss reason of the employer), the

meals so furnished will not’be regarded as furnished for _

_ the convenience of the .employer. Conversely, if the em-

ployer furnishes meals to his ‘employee for a substantial

noncompensatory businegs reason, the meals so furnished

will be regarded as furnished for the convenience of the

employer, even though such meals are also’ furnished for

a compensatory reason. In determining the reason of an

- e b Me . .

. ° ° :

° “ . =

43a . JBS:Regulation

employer for furnishing meals, the mere declaration that

: meals are furnished for a noncompensatory business reason

18 not sufficient to prove that meals ‘are furnished for the

_convenierice of.thée employer, but such determination will be _

based upon an examination of all the surrounding facts and

circumstances. In ‘subdivision (ii) of this subparagraph,

‘there are set:foith some of the substantial noncompensatory

_ business reasons which occur frequently. and which justify

- the conclusion that meals furnished for such a reason are

‘furnished for the convenience of the. @mployer. In sub- -

division (iii) of this subparagraph, there are set forth some

of the business, reasons which are considered to be com-

pensatory and which, in the absence of a substantial non-.

fs compensatory business reason, justify the conclusion that

meals furnished for such a reason are not furnished for the

convenience of the employer. Generally, meals furnished’

before or after the working hours of the employee will not

be regarded as furnished for the convenience of the em-

ployer, but see subdivision (ii) (d) and (f) of. this. sub-

furnished on nonworking days do not qualify for the ex-

_ elusion under section 119. If the employee is required to

occupy living quarters on the business premises‘ of his. °

employer as a condition of his employment (as defined in pha

paragraph (b) of this: section), | the exclusion applies to

the value of any meal furnished without oe to the em-.

ployer. 0 on such premises. . an

~~ (ii) (a) Meals will be regarded : as faruished for

a substantial noncompensatory business reason of the em- .

ployer when the meals are. furnished to the employee’

_ during his ‘working hours to have the employee available

‘for emergency ‘call during his meal period. In order to

demonstrate that meals are furnished to the employee to

~ have the employee available for emergency call during the

IRS Reputation wae . Ba

‘meal: portent it must be laws that emergencies have actu- :

ally occurred, or can reasonably be excepted to occur, in the

employer’s business which have resulted, ‘or will result, in

the employer calling on the employee to papogeri his job

during his meal period.

. -(b) Meals will be begeivtal as. 3 furnished for

a substantial noncompensatory business reason of the em-

ployer when the meals are furnished to the employee during

‘his working hours because the employer’s business is such

that the employee must be restricted to a short meal period,

such as.30 or 45 minutes, and because the employee could

not be expected to’ eat. elsewhere in such a short ‘meal

‘period. . For example, meals may qialify under this sub-

division when the employer is engaged in a business in:

which the peak workload occurs during the normal lunch.

hours.. However, meals cannot qualify under this sub-

division (b) when the reason for. restricting the time-of-"——— _

_ the meal period is so that-the eps ane can be let off earlier |

~ in inthe day.

a substantial noncompensatory business reason of the em-

ployer when the meals are furnished to the employee during

his working hours because the employee could not otherwise

_, Secure proper meals within a reasonable meal period. For

example, meals may qualify under—this subdiyision (c)

____when-there are insufficient eating facilities i in the oy

PPE LRN NAS EA OA TEE SELENIDE LEER: BE GLE LY ERSTE AN CI NE NE ROE A

of the employer’s premises.

(ad) A meal furnished to a risiteititesit em-

ployee or other food service employee for each meal period .

-in which the employee works will be regarded as furnished

for a. substantial noncomperisatory business reason of the

employer, irrespective of Whether the meal is furnished

during, immediately before, or immediately after wd work-

ing hours of the employee.: . | ,

= ployees.

ie IRS Regulation _

oA(e) It ra employer furnishes shele Pa em-.

ployees at & place of business} and the reason for furnish-

ing the meals to each of substantially all. of the employees

, who are furnished the meals is a substantial noncompensa~

tory business reason of the employer, the meals furnished

to each other employee will also be regarded as furnished |

for.a substantial rn ire business reason of the

employer. _ :

(f) If an employer would | have. futiished a a

meal to an employee “during his- working. hours for a sub-

| mh ely business. reason, a meal furnished

_to-such

employee immediatély after his working hours:

se his duties prevented him from obtaining @ meal ~ :

‘during his working. hours will be regarded as furnished

for a substantial noncompensatory business reason.

iii). Meals will be regarded as furnished for a

> \

compensatory business reason of the employer when the

meals are furnished to the employee to promiote the morale

or goodwill of the rr. or to attract —" em-

(3) Meals furnished aed a charge. (i). If an em-

ployer provides meals which an employee may or may not

_ purchase, the meals will riot be regarded as furnished for

_ the convenience of the employer. Thus, meals for which a

_ charge is made by the employer will not bée regarded as

ployee has a choice of accepting the meals and paying for

them or of not paying for them and providing | his meals in

another manner. ie ‘

(ii) If an employer furnishes an . employee

"meals ‘for which the employee is ‘charged an unvaryipg

_ amount (for example, by subtraction from’ ‘his stated com-

- pensation) irrespective of whether he accepts the meals,

the amount of such flat charge made by fhe employer for

IRS Regulation i

such mebls : is not, as such, part of 8h compensation inclu-.

‘dible in- the gross income. of the. ployee; whether the

value of the meals so furnished i is excludable under section

119 is determined-by “applying ‘the rules of subparagraph :

(2) of this-paragraph. If meals furnished for an unvarying

_amount are not furnished for the.convenience of the em-.

ployer in accordance-with the ,rules of subparagraph (2)

of this paragraph, the employee shall include in gross.

income the value of the meals regardless of whether the

value exceeds or is less than the amount charged for such

meals. In the absence of evidence to the contrary, 'the value

"of the méals may be doemiog to be 5 aad ‘to the amount

apaiges for them. }

-(b) Lodging. The value, of lodging furnished to an em-

ployee by, the employer’shall be excluded from the em- .

' ployee’s gross income if three tests are met: ,

(1) The lodging i is furnished on the business prem. Sag

ises of the employer,

i The lodging is furnished for the convenience -

of the employer, and

' (3) The employee ‘is required to accept ‘such lodg-

ing as a condition of his employment.

_ -The requirement of subparagraph (3) of this ulema

that the employee is required to accept such lodging as a

. condition of his employment means that he be required to

accept the lodging in order. to enable him properly to per-

‘ form ‘the duties of his employment. Lodging will be re-

garded as furnished to enable the employee properly to 7

perform the duties of his employment when, for example, .

_ the lodging i is furnished because the. employee is required

to be available for duty at all'times or because the employee -

could not perform the services required of him unless he is . .

furnished such nae If the tests described in —

aa =—S—=<“C:*«sS:«SCRS Regulation

- graphs (1), (2), and (3) of this paragraph are met, the

exclusion shall apply irrespective of whether a charge is

-mnade, or whether, under an employment contract or statute

fixing the terms of employment, such lodging is furnished:

— as compensation. If the. employer furnishes the employee

lodging for which the entploy agg charged ‘an unvarying

amount irrespective of whether he accepts the lodging, the

amount of the charge made by the sliphover for such lodg-

ing is not, as such, part of the compensation includible in

‘the gross inooine of the employee ; whether the value of the |

‘ lodging is excludable from gross income under section 119 —

. ” is determined by applying the other rules of this paragraph. -

_ If the tests described in subparagraphs (1), (2), and (3) .

of this paragraph are not met, the employee shall include

in gross income the value of the lodging: regardless of

whether it exceeds or is less than the: amount charged. In

the absence of evidence to the contrary, the value of the

lodging-may be deemed to be equal to the amount charged.

'(c) Rules. (1) For purposes of this section, the term

‘‘business premises of the employer’? generally means the

‘place of employment of the employee. For example, meals

and lodging furnished in the employer ’3 home to a domestic

| servant: would constitute meals and. lodging furnished on.

the business premises of the employer. Similarly, meals ‘fur-’

-nished to cowhands. while herding their employer’s cattle

on leased land would: be regarded as ree on the

buginess premises of the-employer. ?

(2) The exclusion provided by section 119 appitins

only to meals and: lodging furnished in kind by anemployer |

to his employee. If the employee hasan option to receive _

- additional compensation i in lieu of meals or lodging i ‘in’kind,. ~

the: value of such ‘meals’ and ‘lodging is not excluded from —

"gross income: However,. the mere fact thatan employee, at —

his option, may decline to accept meals tendered in kind

ja 5 : ° ss . .: 4 . .

* _ ;

4 ‘

_ IRS Regulation dite _ - 47a

7 . |

: wil not of itself require. Sindialen, of the olen thereof in

' gross income. Cash allowances for meals or lodging re-

ceived by an employee are includible in gross income to the

- extent that such allowances constitute compensation,

| -« » (d) Examples, The provisions, of section 119 ond be :

| _ illustrated by the following examples:. ~ ..

- Example (1). waitress who works from 7 a.m.’ to

4 pam. is furnished without charge two meals a work day. :

The employer encourages the waitress to have her’ break-

fast on his business premises before starting work, but does |

not require her to have breakfast there. She is required,

_ - however, to have her. lunch on such premises. Since the

* . waitress is a food servite employee and works during the

. normal breakfast and lunch ‘periods, the waitress is per-.

mitted to exclude from her gross income both oe value of

the breakfast and the value of the lunch. _

Example’ (2). The waitress in example ° (1) is al-

lowed to: have meals on the employer’s premises without

charge on her days off. The waitress is not, permitted to

exclude the value of such meals from her gross income.

_Example:(3). A bank teller who works from 9 a.m.

to 5 p.m. is furnished his lunch without charge in a cafeteria ‘

. which the bank maintains. on its. premises. The-bank fur-

- nishes ‘the teller such meals in order to limit his lunch

period to 30 minutes since the bank’s peak work load occurs

during the normal lunch period: If’ the teller had to obtain

his lunch elsewhere, it would take him considerably longer

_ -than 30 minutes for lanch, and the bank strictly enforces

_ the 30-minute time limit. The bank teller. ‘may exclude from

his gross income the value of such. meals aoe A in the

: - Example (4). Assume the game facts as in annie .

- (8), except that the bank charges the bank teller an unvary-

ing rate yer meal, regardless of whether he eats i in the cafe-

48a oc an Regulation

es ® teria: ‘The hexk teller is oul required to inelude in gross:

. income such flat amount charged as part of his. compensa-

tion, and he is entitled to exclude from his gross income

: the value of the meals he receives.for such flat charge.

Example (5). A Civil Service employee of a State is

_ .empioyed at an institution and‘is required by his employer’

to be available for duty at all times, The employer furnishes

the employee with meals'and lodging at-the institution with-.° _

out charge. Under the applicable State statute, his meals

and lodging are regarded as part of the employee’s com-

pensation. The employee would nevertheless be entitled to —

exclude the value of such meals and lodging’ from his gross

income. at

Example (6); kn employee of an institution is given

the choice of residing at the institution free of charge, or of

residing. elsewhere and receiving a cash allowance in ad-

dition to his regular salary. If-he elects to reside at the

institution, the value to the employee of the lodging fur-

_ nished by the employer will be includible in the employee’s

gross income because his residence at the institution is

not required in order for him to perform properly the — |

Baye 8 of his employment. .

“ Example (7). A construction worker i is employed at

me: ‘cuuteiebtioin project at a remote. job site in Alaska. Due

to the inaccessibility of facilities for the employees who

are working at the job site to obtain food and lodging and

the prevailing weather conditions, the employer is required

to furnish meals and lodging to the employee at the camp

site in order to carry on the construction project. The em-

ployee i is required te pay $40 a.week for the meals and lodg-

ing. The weekly charge of $40 is nof, as such, part of the

compensation ineludible in the gross income of the em-

ployee, and under paragraphs (a) and (b) of this section

NEES Ee

Court of Appeals. Opinion z hace

| die aes of the meals anid lodging, i is excludable from aed

gross income. — . =

Example (8). A manufacturing sida provides: a

cafeteria on its premises at which its employees can pur-

3 chase their lunch. There is no other eating facility located

near the company’s premises, but the employee can furnish

his own meal by bringing his lunch. The amount of com-

: pensation which any employee is required to include in

gross income is not reduced by the amount charged for — -

- the meals, and the meals are not considered to be furnished

-for the convenience of the employer. _—>_

Example (9). A hospital maintains a pe on its

premises where all of its 230 employees may obtain: a meal

during their working hours. No charge is made for these

meals. The hospital furnishes such meals in order to have ae

each of 210 of the employees available for any emergencies :

that may occur, and it is shown that each such employee —

is at times called upon to perform services during his meal —

period. Although ‘the hospital does not require such em-

| ployees to remain on the premises during meal. periods,

they rarely leave the hospital during their meal period.

Since the hospital furnishes meals to each of substantially

all of its employees in order to have each of them available

for emergency call during his meal period, all of the hos-

pital employees who obtain their meals in the hospital

cafetéria may exclude from their gross income the value

of such meals. [26 C.F.R., Sec. 1.119-1.].

50a me Certificate of Service

CERTIFICATE OF SERVICE

- I, George D. Massar,* one of the attorneys of record for

‘the Petitioners herein, and a member of the bar of this

Court, hereby certify that copies of the above and foregoing

- Petition for Writ of Certiorari have this day been deposited.

in the’ United States mail, postage prepaid, under —.

cover r to each of the following addressees :

Solicitor General - :

Department of Justice

Washington, D. C. 20525

. Louis F. OserporFer

. Assistant Attorney General

- Office of the United States Attorney General

aoe faery sree} D.C. 20530

Lee A. J ACKSON

Chef -

Appellate Section his

United States Department of ne ustice |

Washingtép, D:0: 20530:

Commissioner of. Internal Revenue >

Internal Revenue Building»

Washington, D.C.

| “Dated: ‘March 22, 1967.

Gzorce D. Massar.

care nad ss hates LAD 3 30 stiri

wise hii cetcthiiiilanlninainsniniabie

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.