Our client, Mercy Hospital (“Mercy”), provides
meal vouchers to its medical employees to enable them to remain on emergency call. The vouchers are redeemable at Mercy’s onsite cafeteria
and at MacDougal’s, a privately owned sandwich shop. MacDougal’s rents business space from the hospital. Although Mercy does
not require its employees to remain on or near its premises during their meal hours, the employees generally do. Elizabeth Fegali, Mercy’s
Chief Administrator, has asked us to research whether the value of the meal vouchers is taxable to the employees.
Issues
[
Identify the issue(s) raised by the facts. Be specific.] The taxability of the meal vouchers depends on three issues: first, whether the meals
are furnished “for the convenience of the employer”; second, whether they are furnished “on the business premises of the employer”;
and third, whether the vouchers are equivalent to cash.
Applicable Law
[
Discuss those legal principles that both strengthen and weaken the client’s case. Because the primary authority for tax law is the IRC,
begin with the IRC.] Section 119 provides that the value of meals is excludible from an employee’s income if the meals are furnished for
the convenience of, and on the business premises of the employer. [
Discuss how administrative and/or judicial authorities expound on
statutory terms.] Under Reg. Sec. 1.119 1, a meal is furnished “for the convenience of the employer” if it is furnished for a “substantial
noncompensatory business reason.” A “substantial noncompensatory business reason” includes the need to have the employee available
for emergency calls during his or her meal period. Under Sec. 119(b)(4), if more than half the employees satisfy the “for the convenience
of the employer” test, all employees will be regarded as satisfying the test. Regulation Sec. 1.119 1 defines “business premises of the
employer” as the place of employment of the employee.
[
When discussing court cases, present case facts in such a way as to enable the reader to draw an analogy with client facts.] A Supreme
Court case,
Kowalski v. CIR, 434 U.S. 77, 77 2 USTC ¶9748, discusses what constitutes “meals” for purposes of Sec. 119. In
Kowalski,
the State of New Jersey furnished cash meal allowances to its state troopers to enable them to eat while on duty. It did not require the
troopers to use the allowances exclusively for meals. Nor did it require them to consume their meals on its business premises. One
trooper, R.J. Kowalski, excluded the value of his allowances from his income. The IRS disputed this treatment, and Kowalski took the
IRS to Court. In Court, Kowalski argued that the allowances were excludible because they were furnished “for the convenience of the
Attachments:
Memo example…..docx