Rev. Rul. 77-80

Advice has been requested whether, under the circumstances described below, food allowances and lodging furnished by an employer to certain employees are excludable from gross income under section 119 of the Internal Revenue Code of 1954.

A charitable organization, which qualifies as a religious organization under section 501(c)(3) of the Code, but which is neither a religious body nor a religious order, employs full-time representatives in various localities in the United States. In addition to a salary of more than $50 a quarter, the organization provides a home without charge to each representative. The representative is required to use the home as a residence and as the primary place for performing the duties of the representative's employment. The duties consist of leading group bible studies, seminars on religious topics, and prayer meetings, as well as recruiting new members, training individuals to be representatives, and providing personal counseling services to members of the organization. The representative is expected to be available at all times to provide counseling services, although these services are sometimes performed outside the home. The home is large enough to provide living accommodations for the representative, the representative's family, and one or two trainees and to accommodate the various groups led by the representative. All clerical and administrative functions relating to the representative's duties are also conducted in the home. In addition to the home, each representative receives an allowance for the purchase of groceries with which meals are prepared and consumed at the home. The organization has filed Forms SS-15 and SS-15a electing coverage under the Federal Insurance Contributions Act for its employees.

Section 61(a) of the Code and the Income Tax Regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived, including compensation for services.

Section 1.61-2(d)(3) of the regulations provides, in part, that the value of living quarters or meals that an employee receives in addition to the employee's salary is gross income unless they are furnished for the convenience of the employer and meet the conditions specified in section 119 of the Code and the regulations thereunder.

Section 119 of the Code provides, in part, that there shall be excluded from gross income of an employee the value of any meals or lodging furnished to the employee by the employer for the convenience of the employer, but only if certain requirements are met. In the case of meals, the meals must be furnished on the business premises of the employer. In the case of lodging, the employee must be required to accept the lodging on the business premises of the employer as a condition of employment.

Section 1.119-1(c)(1) of the regulations provides, in part, that for purposes of section 119 of the Code, the term "business premises of the employer" generally means the place of employment of the employee.

Section 1.119-1(c)(2) of the regulations provides, in part, that the exclusion provided by section 119 of the Code applies only to meals and lodging furnished in kind by an employer to an employee. Cash allowances for meals or lodging received by an employee are includible in gross income to the extent that such allowances are compensation.

In Michael A. Tougher, Jr., 51 T.C. 737 (1969), aff'd per curiam, 441 F. 2d 1148 (9th Cir. 1971), cert. denied, 404 U.S. 856 (1971), the Tax Court of the United States held that groceries purchased by employees did not qualify as "meals" under section 119 of the Code. The court stated that the word "meals" connotes food that is prepared for consumption at such recognized occasions as breakfast, lunch, dinner, or supper, or the equivalent thereof, and that, although items of food can be processed and combined with other items so as to produce meals, in their raw form they are not ordinarily regarded as meals.

Section 1.119-1(b) of the regulations, concerning lodging, provides, in part, that the requirement that the employee be required to accept the lodging as a condition of employment means that the employee be required to accept the lodging in order to enable the employee properly to perform the duties of the employment. Lodging will be regarded as furnished to enable the employee properly to perform the duties of the employment when, for example, the lodging is furnished because the employee is required to be available for duty at all times or because the employee could not perform the services required unless such lodging is furnished.

In this case, the representative's place of employment is the home furnished by the organization. The lodging is furnished for the convenience of the employer, and the representative is required to accept the lodging as a condition of employment in order to properly perform the duties required in the employment.

Accordingly, in the instant case, the value of the lodging furnished to the representative is excludable from the representative's gross income under section 119 of the Code.

The food allowance paid to the representative is not excludable from gross income under section 119 of the Code because it does not meet the requirements of section 119 and the regulations thereunder. Accordingly, the amount received as a food allowance is includible in the representative's gross income under section 61.

Section 3401(a) of the Code, relating to the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, of the Code) defines the term "wages," with certain exceptions not here material, as all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.

Section 31.3401(a)-1(b)(9) of the Employment Tax Regulations, relating to income tax withholding, provides that the value of any meals or lodging furnished to an employee by an employer is not subject to withholding if the value of the meals or lodging is excludable from the gross income of the employee.

Therefore, since the value of the lodging is excludable from the gross income of the representative under section 119 of the Code, it is not subject to the withholding of income tax. However, the food allowance is "wages" subject to the withholding of income tax, since there is no applicable exception excluding such cash remuneration from "wages."

Section 3121(a) of the Federal Insurance Contributions Act (chapter 21, subtitle C, of the Code) contains a definition of "wages" similar to that found in section 3401(a).

Section 3121(b)(10)(A) of the Act excepts from the definition of "employment," for purposes of the Act, service performed in any calendar quarter in the employ of any organization exempt from income tax under section 501(a) of the Code (other than an organization described in section 401(a)) or under section 521, if the remuneration for such service is less than $50.

The regulations relating to the Federal Insurance Contributions Act do not contain a provision similar to that found in section 31.3401(a)-1(b)(9) of the regulations.

The fair value of lodging furnished employees by their employer represents "wages" for purposes of the Federal Insurance Contributions Act. Whether the lodging is furnished "for the convenience of the employer" is immaterial for purposes of the Act. See Rev. Rul. 62-150, 1962-2 C.B. 213, and Rev. Rul. 68-322, 1968-1 C.B. 416.

Accordingly, the services performed by the representative are not excepted from "employment" under section 3121(b)(10)(A) of the Federal Insurance Contributions Act, since the remuneration paid the representative is more than $50 in each quarter. The wages for purposes of the taxes under the Act include the salary paid the representative, the food allowance, and the fair value of the lodging furnished.