Introduction
The case is an interpretation of the taxation of meals provided by the employer. Focussed on interpretation of the Internal Revenue Code, 119(a)-(b)(4) and (d) and Treas Reg 1.119-1, the notable case sensitizes on the need to differentiate meals in kind to those that are subject to taxation. Hence, within the case, it was held that section 119 was relevant for the exclusion of meals received in “kind” and does not exempt financial reimbursements for the meals in the case. Hence, an assessment of the case should highlight the need to differentiate allowances from the taxable income that officers receive.
Overview of the Facts
New Jersey has a cash meal allowance for the State Police, which was passed in July 1949. Prior, the troopers could access mid-shift meals at several meal locations throughout the State. The State proposed that more than the system or regulatory process was needed since it would lead the State police to leave the patrol areas for an extended period (Rhodebeck, 1979). By adopting the new system, the State Police were warranted to request a cash allowance, which would allow for meal purchase at areas within the patrol area and their convenience (Schuetze, 1978). The 1949 regulation set the standard for ensuring comprehensive police monitoring while meeting their basic needs without infringing on their roles. Hence, the meal allowance would be paid bi-weekly in advance, which was incorporated separately into the overall salary (Schuetze, 1978). Additionally, the cash was accounted for separately within the State accounting systems. Funds emanating from the meal allowance were not mixed with the salary accounts. Consequently, the State police were not mandated to spend the allowances during their mid-shift meals and were not required to account for the spending habits surrounding the cash use. The stipulations meant that the troopers could eat at home if the patrol area was within the locality or bring a meal from their residence and consume it in the patrol cars. For Kowalski, the trooper reported wages in 1970 that were inclusive of a portion of the meal allowances of $326.45 while omitting $1,371.09 in allowances (Schuetze, 1978). An implication was that the revenue commissioner believed that the amount should have been reported in the income. The revenue commissioner emphasized that the income was a manifestation of tax deficiency. On the other hand, the trooper affirmed that the cash meal allowances were not compensatory but were furnished at the convenience of the employer. Thus, it should not be deemed as an income under IRC 61(a), and it was exempted under IRC 119.
Procedural History
Taxation of allowances and developing insight into instances of exclusion play an integral role in the case. Ensuring an accurate statement surrounding the exclusion of the cash allowances from the personnel income entails the analysis of past procedural cases to influence overall decision-making. Situational awareness of the value of subsistence and the cash benefits provided in kind should centre on Arthur Benagli, 36 B.T.A (Rhodebeck, 1979). Case 38 pointed out that subsistence and allowances were not from the employer and were received by the worker based on the need to promote convenience and efficiency in the execution of the roles and responsibilities (Gronda, 1979). Thus, furnishing the employee with the requirements to improve service delivery is a critical component of allowances, subsistence and quarters provision. Specific personal requirements being satisfied and met by the employer are incidental to the terms of employment.
Equally, the Van Rosen V. Commissioner case sheds light on the civilian ship captain who was under the employment of the United States Transportation Corps (Josephs, 1978). Within the case, the capacity for pay and subsistence allowances were included in the Marine Personnel Regulations within the army. The defendant emphasized that allowances should not be subject to taxation, especially in dire situations where basic needs are required. Principle argument in the Tax Court was in line with Jones v. United States. In the past case, it was held that subsistence allowances are not liable for taxation. Consideration of the underlying factors that lead to the usage of the allowances should guide the overall decision-making (Rhodebeck, 1979). The Kowalski case is a reference to past procedural instances that examine the statutory subsistence allowances that employees received. Referring to the general rule that surround the amounts obtained as statutory subsistence allowances by an individual in the public domain. In contemporary laws, the subsections apply to the amounts that do not exceed $5 daily. Individuals obtain the subsistence allowance whereby the general rule on daily usage translates into no deductions to be undertaken.
Legal Reasoning of the Case
The court was clear that Kowalski, in his employment description, was receiving $8739.38 and an additional $1697.54 in designated meal allowances. Hence, the State preference for cash allowance for the State Police was adopted in 1949 (Gronda, 1979). However, the allowance system led to the restriction of the police to the diverse meal stations in the State. Closure of the stations led to the dynamic approach towards access to the meals. The decision aimed to ensure flexibility for the police in ensuring that they can obtain meals at any location without negatively impeding the execution of roles and responsibilities. Thus, upon assessment of the facts, the court uncovered that exclusion under IRC section 119 was solely for the meals provided in-kind (Josephs, 1978). The section is emphatic in referring to meals and not cash used for the meals. Through the statute, it is evident that the value of the meals is within the taxation process. Using section 119 as an argument counters the express inclusion of the meals as opposed to the finances provided. Additionally, the Senate report 1622 of 1954 is direct in affirming that the section is applicable to meals in kind (Josephs, 1978). Cash allowances are included in the taxation process to the level at which the allowances comprise compensation. The court emphasized that section 119’s intention is to eliminate confusion in the use of the defence surrounding convenience for the personnel doctrine. Hence, the court was open to rejecting the section 119 argument on the exclusion of the benefits.
Conclusion
The case examines whether meal allowances for State troopers should be included in the gross income. Most importantly, the assessment of the allowances being excludable within the Internal Revenue Code forms the basis for decision-making. Central to decision-making is the Supreme Court’s assertion that meal allowance payment should be deemed as income. Most importantly, the court questioned the convenience-of-the-personnel perspective held in examining meals and lodging. Hence, the court’s affirmation that the meal allowance payments should be deemed as income is in light of the Commissioner v. Glenshaw Glass Co. Through the past case, it is clear that income is explicitly realized assertions to personal wealth except where it is expressly excluded. Consequently, rejection of Kowalski’s arguments surrounding the IRC119 on the exclusion of the cash meal allowance for taxation.
References
Gronda, J. D. (1979). Taxation-Cash Meal Payments under the 1954 Internal Revenue Code. Wayne L. Rev., 26, 215.
Josephs, M. K. (1978). Taxation-Inclusions in Gross Income-Cash Allowances for State Troopers. Duq. L. Rev., pp. 17, 229.
Rhodebeck, L. D. (1979). The Convenience of the Employer Doctrine and State Trooper Cash Meal Allowances Under the Internal Revenue Code: Commissioner v. Kowalski. Ohio St. LJ, 40, 229.
Schuetze, M. M. (1978). Commissioner v. Kowalski: Examination of Cash Reimbursements to State Troopers for Meals. Ohio NUL Rev., 5, 495.
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