Benaglia v. Commissioner case brief

Benaglia v. Commissioner
36 B.T.A. 838 (1937)

FACTS
-Petitioner managed hotels in Honolulu.
-He and his wife occupied a suite and received meals at and from the hotel, but did not report their value in his income.
-Commissioner added $7,845 each year to gross income as compensation from Hawaiian Hotels, Ltd.

ISSUE
-Whether the residence and meals at the hotel were compensation and therefore part of petitioner's gross income for which he could be taxed.

HOLDING
-No. The petitioner lived at the hotel solely because he could not otherwise perform the services required of him.

RULES
-Was the occupation of the premises imposed for the benefit of the employer?  If so, not compensation.

• A taxpayer employee may exclude the value of food and lodging received from his employer, if he receives it solely for the convenience of his employer and as a necessary incident of the proper performance of his duty

The meals-and-lodging exclusion has been formalized as §119

ANALYSIS
-The occupation of the premises was imposed upon him for the benefit of the employer.
-This is not to say that anytime an employee is fed or lodged by the employer that it is not taxable income.
-The court also looked at the intent of the parties and decided the employer never intended the room and board to form part of his compensation.

DISSENT
-The living quarters and meals were included in a letter forming the employment contract and therefore was intended to be compensation. He was relieved of having to pay for lodging and meals, therefore he was enriched. The majority thinks the question is one of convenience, but the real issue is whether the petitioner benefited financially. If it was necessary to live on the premises, occupancy at the Moana (another hotel owned by Hawaiian Hotels) would have been equally essential, yet he did not have living quarters or meals there.

Class:  Federal Income Taxation