Rev. Rul. 68-322

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in S.S.T. 96, C.B. 1937-1, 439.

In the instant case the M sorority maintains a sorority house at which it employs a number of individuals. Some of the employees are given cash remuneration for the services they perform and, in addition, are furnished meals and lodging as part of their compensation. Several employees, who are college students, are furnished only meals and lodging as remuneration for their services. The question here is the amount the sorority should take into consideration in determining the employees' wages subject to the taxes imposed by the Federal Insurance Contributions Act, and the Federal Unemployment Tax Act, and to the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

Under substantially similar provisions of the Employment Tax Regulations relating to the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, the term "wages" means all remuneration for employment, including the fair value of all remuneration paid in any medium other than cash, with certain exceptions not here pertinent. Under the provisions of the regulations relating to the Collection of Income Tax at Source on Wages, the value of meals and lodging is wages subject to income tax withholding unless it is excludable from the employee's gross income under the convenience-of-the-employer test in section 119 of the Code.

In determining the amount of an employee's wages, if any, subject to the Federal employment taxes, the M sorority should take into consideration the cash remuneration paid to an employee and the fair value of the meals and lodging furnished. The Internal Revenue Service has placed no specific valuation on meals furnished to an employee as part of his compensation. However, Revenue Ruling 68-321, page 415, this Bulletin, sets forth the factors that should be considered in determining the fair value of the meals. In computing the fair value of lodging, all pertinent factors should similarly be considered. The cost of the meals and lodging to the sorority is not in and of itself determinative of the value of these items for Federal employment tax purposes.

Accordingly, the M sorority is liable as an employer for the taxes under the Federal Insurance Contributions Act on the cash remuneration paid the employees and the fair value of meals and lodging furnished as part or all of their compensation. If the sorority had four or more persons in its employ on at least one day of each of twenty calendar weeks in the taxable year, it is similarly liable for the tax under the Federal Unemployment Tax Act. The sorority is required to withhold income tax on the cash remuneration paid to employees; and the sorority also is required to withhold income tax on the value of meals and lodging furnished to employees if the value is not excludable from the employees' gross income under section 119 of the Code, relating to meals and lodging furnished for the convenience of the employer. When employees receive only meals and lodging, and no cash, as remuneration for their services, the employer should make necessary arrangements to insure that the amount of tax required to be withheld is available for payment in money. (See sections 31.3102-1(a) and 31.3402(a)-1(c) of the regulations.)

S.S.T. 96 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.