Commissioner v. Kowalski - 434 U.S. 77, 98 S. Ct. 315 (1977)

Rule:

Payments represent income where they are undeniably accessions to wealth, clearly realized, and over which the respondent has complete dominion.

Facts:

New Jersey provides a cash meal allowance for its state police troopers, which is paid biweekly in advance in an amount varying with the trooper's rank and is included, although separately stated, with his salary and in his gross pay for purposes of calculating pension benefits. Although troopers are required to remain on call in their assigned patrol areas during their midshift break, they are not required to eat lunch at any particular location, and indeed may eat at home, nor are they required to spend the meal allowance on food. No reduction in the allowance is made for periods when a trooper is not on patrol. Respondents, a trooper and his wife, included only a part of the meal allowances received by the trooper in their 1970 federal income tax return and the Commissioner assessed a deficiency with respect to the remainder. The respondents argued in the Tax Court that the allowance was not income within § 61(a) of the Internal Revenue Code of 1954, which defines gross income as "all income from whatever source derived, including (but not limited to)… (1) Compensation for services, including fees, commissions, and similar items." In the alternative, they argued that the allowances were excludable from § 61 income because of § 119 of the Code, which creates an exclusion for "the value of any meals… furnished to [an employee] by his employer for the convenience of the employer, but only if… the meals are furnished on the business premises of the employer," and further provides that "[in] determining whether meals are furnished… for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals… are intended as compensation." The Tax Court rejected both contentions, but the Court of Appeals reversed. 

Issue:

Were the cash meal-allowance payments included in gross income under § 61(a)?

Answer:

Yes.

Conclusion:

The Court held that cash payments given to respondent state police trooper as meal allowances constituted income under I.R.C. § 61, because they were undeniably accessions to wealth, clearly realized, and over which respondent had complete control. The issue then was whether the payments were excluded from income under I.R.C. § 119, as meals furnished for the convenience of respondent's employer. The Court held that I.R.C. § 119 did not cover cash payments of any kind, because § 119 covered meals furnished by employers and not cash reimbursements for meals. Thus, respondent's meal allowance payments were not excludable under § 119.