Rev. Rul. 81-222

ISSUE

Is the value of meals and lodging wages under sections 3121(a), 3306(b), and 3401(a) of the Internal Revenue Code if it is includible in gross income?

FACTS

A manufacturing company owns a number of houses and allows certain office employees to reside in them without charge. In addition, it provides meals without charge to the employees on work days. Because the meals and lodging are provided under circumstances that do not meet the requirements of section 119 of the Code and the regulations thereunder, the value of the meals and lodging is not excluded from the employees' gross incomes under that section.

LAW AND ANALYSIS

Section 3401(a) of the Code provides that, for purposes of income tax withholding, the term "wages" means all remuneration for services performed by an employee for an employer, including the cash value of all remuneration paid in any medium other than cash, with certain exceptions not pertinent here. Sections 3121(a) and 3306(b), applicable to the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), respectively, contain similar definitions.

Section 31.3401(a)-1(b)(9) of the Employment Act Regulations excepts from wages, for purposes of income tax withholding, the value of any meals or lodging furnished to an employee by an employer, if the value of the meals or lodging is excludable from the gross income of the employee under the provisions of the regulations under section 119 of the Code. Section 119 excludes from gross income the value of meals and lodging furnished for the convenience of the employer if the requirements of that section are met.

Under sections 31.3121(a)-1(e) of the regulations, applicable to the FICA, and section 31.3306(b)-1(e), applicable to the FUTA, remuneration paid in the form of lodging or food is wages in the same manner as remuneration paid in cash.

Sections 31.3121(a)-1(f) of the regulations, applicable to the FICA, and section 31.3306(b)-1(f), applicable to the FUTA, state that the value of meals and lodging furnished to restaurant or hotel employees or to seamen aboard vessels is considered wages, since it is an appreciable part of the total pay of such employees.

In Rowan Companies, Inc. v. United States, 101 S. Ct. 2288 (1981), Ct. D. 2009, page 191, this Bulletin, the Supreme Court of the United States held that the value of meals and lodging furnished for the convenience of an employer, within the meaning of section 119 of the Code, was not "wages" for purposes of section 3121(a) and 3306(b). The Court further held that sections 31.3121(a)-1(f) and 31.3306(b)-1(f) of the regulations were invalid, since they ignored the convenience of the employer rule. However, the Court stated that the inclusion of room, board, etc. in wages under the FICA and the FUTA [see sections 31.3121(a)-1(e) and 31.3306(b)-1(e) of the regulations] is not inconsistent with the application of the convenience of the employer rule to determine wages. Under the rule, room and board are wages unless they are provided for the employer's convenience. 101 S. Ct. at 2295, n. 12. Congress intended the definitions of wages to be interpreted in the same manner for the FICA and the FUTA as for income tax withholding. The convenience of the employer rule expressly applies to wages under the income tax withholding provisions (section 31.3401(a)-1(b)(9) of the regulations). 101 S. Ct. at 2295, n. 13.

Section 31.3401(a)-1(b)(9) of the Employment Tax Regulations, by referring directly to section 1.119-1 of the Income Tax Regulations, provides a precise condition (that is, the convenience of the employer rule) that must be met for the value of meals and lodging to be excludable from wages for purposes of income tax withholding. In accordance with the Rowan case, the same condition applies for FICA and FUTA purposes.

Pub. L. 95-427, section 1, 1978-2 C.B. 363, 364, as amended by Pub. L. 96-167, section 1, 1980-1 C.B. 483, 484, and as amended by the Economic Recovery Tax Act of 1981, Pub. L. 97-34, section 801, page 256, 348, this Bulletin, precludes the Internal Revenue Service from issuing any revenue rulings or revenue procedures if they alter, or deviate from, in any significant way, the historical treatment of fringe benefits. Because the holding in this revenue ruling is based upon sections 31.3121(a)-1(e) (issued July 14, 1956), 31.3306(b)-1(e) (issued September 5, 1956), and 31.3401(a)-1(b)(9) (issued October 26, 1957) of the regulations, it does not alter, or deviate from, the historical treatment of furnished meals that are not excludable from an employee's gross income under section 119 of the Code.

HOLDING

The value of meals and lodging in this case is wages under section 3121(a), 3306(b), and 3401(a) of the Code, since the meals and lodging are not provided for the convenience of the employer within the meaning of section 119.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 57-471, 1957-2 C.B. 630; Rev. Rul. 62-150, 1962-2 C.B. 213; Rev. Rul. 68-322, 1968-1 C.B. 416; Rev. Rul. 71-290, 1971-2 C.B. 340; and Rev. Rul. 80-41, 1980-1 C.B. 211, which hold that the value of meals and lodging is wages under sections 3121(a) and 3306(b) of the Code, even though it is excluded from gross income under section 119, are revoked.

Rev. Rul. 54-593, 1954-2 C.B. 31; Rev. Rul. 55-630, 1955-2 C.B. 616; Rev. Rul. 55-631, 1955-2 C.B. 619; Rev. Rul. 71-411, 1971-2 C.B. 103; Rev. Rul. 72-385, 1972-2 C.B. 535; and Rev. Rul. 77-80, 1977-1 C.B. 36, are modified to the extent they contain holdings that the value of meals and lodging is wages under sections 3121(a) and 3306(b) of the Code, even though it is excluded from gross income under section 119.

¹ Also released as News Release IR-81-104, dated September 11, 1981.