Comm'r of Internal Revenue

Tax Court of the United States.Jun 23, 1954
22 T.C. 637 (U.S.T.C. 1954)
22 T.C. 637T.C.

Docket Nos. 45628–45632.



Robert Stemmons, Jr., Esq. , for the petitioners. Melvin A. Bruck, Esq. , for the respondent.

The petitioners were furnished food and housing by their employer. Although these items were furnished as a convenience to the employer they were also furnished to and received by petitioners as a part of their compensation. Held, that the value of the food and housing so furnished petitioners, being a part of their compensation, constituted part of their gross income regardless of the fact that the items were furnished for the convenience of their employer. Robert Stemmons, Jr., Esq., for the petitioners. Melvin A. Bruck, Esq., for the respondent.

The Commissioner has determined deficiencies against the respective petitioners for the calendar year 1950 in the following amounts:

+-----------------------------------------------------------+ ¦Petitioner ¦Docket No.¦Deficiency¦ +-------------------------------------+----------+----------¦ ¦Charles A. Brasher and Louise Brasher¦45628 ¦$208.10 ¦ +-------------------------------------+----------+----------¦ ¦Harry Olmsted and Mary Olmsted ¦45629 ¦162.64 ¦ +-------------------------------------+----------+----------¦ ¦Charles E. Hellweg ¦45630 ¦143.00 ¦ +-------------------------------------+----------+----------¦ ¦F. H. Maples and Ruth Maples ¦45631 ¦186.00 ¦ +-------------------------------------+----------+----------¦ ¦Paul Ottosen and Ruth Ottosen ¦45632 ¦193.52 ¦ +-----------------------------------------------------------+

The issue before us is whether respondent erred in including in the gross income of each petitioner the value of food and housing furnished by his employer.


Some facts have been stipulated and are so found.

All the petitioners herein were residing at Mt. Vernon, Missouri, at the close of the year 1950. The income tax returns for 1950 of all petitioners were filed with the collector of internal revenue for the sixth district of Missouri.

Doctors Brasher, Olmsted, Hellweg, Maples, and Ottosen (hereinafter sometimes referred to as petitioners) were employed by the Missouri State Sanatorium at Mt. Vernon, Missouri, during the year 1950.

The sanatorium is an eleemosynary institution and is an activity of the Department of Public Health and Welfare of the State of Missouri.

The sanatorium consists of about 25 or 30 buildings situated on approximately 300 acres of ground. During 1950, about 500 patients were cared for there; at the time of trial there were about 600 patients, cared for by about 400 employees including 10 doctors and physicians.

The meals and living quarters of officers and staff doctors and physicians of the sanatorium were during the year at issue furnished by the State. The doctors and physicians are required by the hospital rules and by the superintendent to live on the premises of the institution. The reason for the requirement is that petitioners must necessarily, during each 24-hour period, be available to render their services to any patient of the hospital needing such services.

In the early part of 1950, all staff physicians with families (other than Dr. Brasher, who was and is the superintendent of the institution) were housed in apartments in a portion of the main building of the sanatorium. Dr. Brasher lived in a State-supplied cottage on State property. Dr. Olmsted, the dentist, lived off the hospital premises at that time because of a lack of room for him on the premises. The apartments in the main building were not equipped with kitchens; while the staff physicians and their families were living there, their meals were taken in the sanatorium dining room.

About the middle of 1950, 10 cottages were built on the hospital premises for the occupancy of staff doctors. Doctors Olmsted, Maples, and Ottosen moved into such cottages upon their completion. Dr. Hellweg, who was divorced, lived in a hospital dormitory. After the cottages were built, deliveries of food supplies were made to the doctors' wives twice a week. They also received menus weekly so that they would know what food to expect, and on the basis of which they requisitioned food necessary for their respective families. The food was supplied from the sanatorium storeroom.

The staff doctors at the sanatorium are, and were during 1950, subject to the provisions of the State merit system law (a law generally similar to ‘civil service system’ laws in other States). The merit system law for Missouri is set forth in chapter 36, Revised Statutes of Missouri, 1949, in general accord with the provisions of the Constitution of 1945 of the State of Missouri, article IV, section 19.

The Missouri State personnel director has statutory authority to prepare job classification plans and to allocate various positions to appropriate classes, among State employees under the merit system law; and he has statutory authority to prepare pay plans for all classes of positions subject to the merit system law. The doctors at the sanatorium, including petitioners, are not employed under a written contract of employment.

Before the sanatorium was operated under the State merit system law (it began operations under the merit system law at or about the year 1946), the staff doctors received a salary and were furnished ‘maintenance,’ that is, food and lodging. After the merit system law was put into effect, doctors were rated according to ‘grade.’ Petitioners' grades were initially determined by applications being filed in each instance with the State personnel director. The applications were filed by the hospital superintendent. In preparing such applications the superintendent determined the individual petitioner's merit system grade by adding to each petitioner's then salary the cost of food and housing furnished him and his family and applying for a grade rating which, under the merit system laws of the State, carried the pay range within which the figure thus obtained was included. The amount of maintenance allowance applicable to a particular doctor was determined by the number in his family. The maintenance figure was based upon the cost to the State of furnishing such food and lodging. This basic figure was then multiplied by the number of persons in the doctor's family in determining his particular maintenance allowance.

The gross income, the deduction made by the sanatorium for maintenance, and the net resulting amount paid each of petitioners during 1950 were as follows, as reflected on the books and records of the sanatorium:

+-------------------------------------------------+ ¦Doctor ¦Gross ¦Maintenance deduction¦Net ¦ +-------+---------+---------------------+---------¦ ¦Brasher¦$7,902.00¦$1,338.00 ¦$6,564.00¦ +-------+---------+---------------------+---------¦ ¦Olmsted¦4,656.00 ¦624.00 ¦4,032.00 ¦ +-------+---------+---------------------+---------¦ ¦Hellweg¦2,008.93 ¦166.73 ¦1,842.20 ¦ +-------+---------+---------------------+---------¦ ¦Maples ¦6,540.00 ¦985.60 ¦5,554.40 ¦ +-------+---------+---------------------+---------¦ ¦Ottosen¦6,078.00 ¦1,141.50 ¦4,936.50 ¦ +-------------------------------------------------+ The ‘net’ figures shown above are the figures shown on the respective Forms W–2 furnished to the doctors and reported on their respective income tax returns as ‘total wages' from the sanatorium.

The amounts representing the cost of food and housing furnished petitioners as above set forth were received by them respectively as a part of their compensation. Petitioners were furnished food and housing as a convenience to their employer.


WITHEY, Judge:

The value of housing and food furnished to each of the petitioners and their respective families is hereinafter referred to as maintenance.

The briefs of the parties convince us that there is no dispute concerning either the compensatory nature of the food and housing furnished petitioners or the fact that their use thereof was for the convenience of their employer, the Missouri State Sanatorium. The controversy arises only with respect to the legal effect of those facts.

Petitioners rely primarily on Regulations 111, section 29.22(a)–3. That portion of the Regulations 111 which has application to the question before us is printed in the margin. Petitioners' position in effect is that the two sentences quoted in the margin must be read together, i. e., that regardless of the compensatory nature of the maintenance furnished a taxpayer, if his acceptance and use thereof is for the convenience of his employer, the value of such maintenance need not be included in his gross income.

SEC. 29.22 (a)–3. COMPENSATION PAID OTHER THAN IN CASH.—* * * If a person receives as compensation for services rendered a salary and in addition thereto living quarters or meals, the value to such person of the quarters and meals so furnished constitutes income subject to tax. If, however, living quarters or meals are furnished to employees for the convenience of the employer, the value thereof need not be computed and added to the compensation otherwise received by the employees. * * *

Respondent contends, on the contrary, that Regulations 111 must be read to mean that regardless of the fact that the acceptance and use of maintenance furnished a taxpayer by his employer is for the convenience of the employer, if it is compensatory to the taxpayer it is includible in his gross income. In so contending, respondent also relies upon Regulations 111, section 29.22(a)–3, and upon this Court's holdings in the following cases: Herman Martin, 44 B. T. A. 185; Arthur Benaglia, 36 B. T. A. 838; and Percy M. Chandler, 41 B. T. A. 165, affd. (C. A. 3) 119 F. 2d 623. We agree with respondent's contention. Joseph L. Doran, 21 T. C. 374.

Ordinarily the issue here involved presents a question determinable as a factual problem, but the parties here are not in dispute on the facts, nor is any issue raised with respect to the inclusion in income of maintenance furnished to and accepted by members of petitioners' respective families.

An examination of the portion of Regulations 111 quoted in the margin clearly demonstrates that it is not a basis for petitioners' contention. The first sentence can not be read so that its wording may be said to apply to any maintenance except that which is received as compensation. The second sentence may be read to refer only to maintenance furnished an employee for the convenience of the employer. In order that the two be read as petitioners would have us read them, the second sentence would of a necessity have to be amended to read, in part, as follows: ‘If, however, [such] living quarters or meals are furnished * * *.’ Only by including a word which is absent therefrom may the regulation become a basis for petitioners' theory in the case. Where, as in the instant case, although maintenance is furnished by the employer for his convenience, the taxpayer's compensation is nevertheless based upon the total of his cash salary plus the value of such maintenance, that total compensation represents taxable income. Joseph L. Doran, supra; Herman Martin, supra. On the other hand, where the maintenance is furnished for the convenience of the employer and the value thereof is not found to be compensation we have held such value excludible from gross income. Arthur Benaglia, supra. It is plain from this record also that we may not treat the maintenance here furnished as a gift. See Percy M. Chandler, supra. For these reasons we find for the respondent.

Because of variances between the notices of deficiency and our findings of fact as to the value of maintenance furnished the respective petitioners, Rule 50 decisions will be necessary.

Decisions will be entered under Rule 50.