APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil No. 566-71).
Van Dusen, Aldisert, and Rosenn, Circuit Judges.
VAN DUSEN, Circuit Judge.
This case is before us on appeal by the Government from a district court judgment in favor of plaintiff-appellee taxpayer, Dr. Jacob,*fn* in a refund suit to recover federal income taxes paid by the taxpayer pursuant to a deficiency assessment for the taxable years 1964-1966. The issue presented by this appeal is whether groceries furnished to the taxpayer by his employer for consumption on the employer's premises constitute "meals" within the meaning of Section 119 of the Internal Revenue Code, 26 U.S.C. § 119, so as to be excludable from the employee's gross income.
The taxpayer is the Executive Director of the Training School Unit of the American Institute for Mental Studies (hereinafter referred to as the "Institute") in Vineland, New Jersey. The Institute is a home for approximately 300 mentally retarded individuals whose ages range from early childhood to over 60 years old. As Executive Director of the Institute, the taxpayer is primarily responsible for both the administration of the Institute and the content of its rehabilitative and educational programs. In addition to his routine administrative duties, the taxpayer has a number of special responsibilities which demand a great deal of his time. He must serve as a "father figure" to most of the students who reside at the Institute, particularly those who have no parents, and must be available at all times to provide counsel and guidance to his students. Also, in the absence of parents and relatives, the taxpayer is solely responsible for making all decisions which would otherwise require parental consent, such as major medical decisions, and he must handle all emergencies which arise at the Institute.
In light of the heavy personal demands upon the Executive Director, the Institute requires, as a condition of employment, that the taxpayer reside on the premises of the Institute and be available on a 24 hour a day basis.*fn1 Therefore, in the taxable years in question, the taxpayer and his family resided on the premises of the Institute in a house provided by the Institute. In addition to the house, the Institute provided the taxpayer and his family with free groceries (including certain non-food items such as napkins, soap, etc.) from the Institute's commissary.
Upon audit of Dr. Jacob's federal income tax returns for the taxable years 1964-1966, the Commissioner of Internal Revenue determined, inter alia,*fn2 that the cost value of the groceries provided by the Institute to the taxpayer without charge was includible in the taxpayer's gross income and that the groceries were not excludable as "meals" provided the taxpayer within the coverage of section 119. The taxpayer thereupon paid the deficiency in taxes resulting from this determination, filed a claim for refund, and, upon denial of the claim, filed the instant suit for refund in the district court. The district court held that the cost of the groceries was excludable from the taxpayer's gross income. The Government has appealed from that decision.
Section 119 of the Internal Revenue Code provides that "there shall be excluded from gross income of an employee the value of any meals . . . furnished to him by his employer for the convenience of the employer . . . if . . . the meals are furnished on the premises of the employer." 26 U.S.C. § 119. Therefore, to be entitled to an exclusion from gross income under § 119, an employee must be (1) furnished meals by the employer (2) for the convenience of the employer (3) on the business premises of the employer.
The Commissioner contends that the furnishing of grocery items in the nature of unprepared foodstuffs does not constitute "meals" within the intendment of § 119. Specifically, the Commissioner contends that the furnishing of groceries does not further the statutory purpose underlying § 119, namely, to enable an employer to obtain the continuous presence of its employees at the site of employment by offering meals to its employees. Also, the Commissioner argues that the term "meals," as used in § 119, should be given its plain and ordinary meaning and should be construed to apply only to prepared, ready-to-eat portions of food, such as those served in a restaurant. In support of this proposition, the Commissioner cites Tougher v. Commissioner, 51 T.C. 737 (1969), aff'd, 441 F.2d 1148 (9th Cir.), cert. denied, 404 U.S. 856, 30 L. Ed. 2d 97, 92 S. Ct. 103 (1971), in which the Tax Court held that an FAA employee, who was required by his employment to live on a remote island in the Pacific Ocean, was not entitled to exclude from gross income the value of groceries purchased from an FAA commissary because such groceries did not constitute "meals" within the meaning of § 119.*fn3
After careful consideration, we reject the above contentions and hold that the furnishing of groceries to the taxpayer under the facts of this case, where such groceries were furnished for the convenience of the employer on the premises of the employer and where such groceries were prepared into meals and consumed by the taxpayer on the employer's premises, constitutes meals furnished within the meaning of § 119.
This narrow holding is not inconsistent with the basic purpose of § 119. As stated by the Government in its brief, such purpose "is to allow employees to exclude from income the value to them of meals furnished by the employer primarily for the convenience of the latter. As reflected in the pertinent Treasury Regulations and the Committee Reports, the convenience in question centers on the desire of the employer to have a more continuous presence of the employee at the job site and to have him be within reach even when eating."*fn4
The above statutory purpose is not undermined at all in the instant case by the fact that the taxpayer-employee, rather than the employer, prepared the meals. To illustrate, rather than providing groceries to the taxpayer, the Institute could have furnished prepared meals to the taxpayer in its cafeteria. Assuming that such meals were furnished for the convenience of the Institute, the value of such meals would be excludable from the taxpayer's gross income under § 119. Alternatively, the Institute could have prepared meals out of groceries supplied by its commissary and then served these meals to the taxpayer in the house provided the taxpayer by the Institute. Assuming again that such meals were furnished for the convenience of the Institute, the value of such meals would be excludable from the taxpayer's gross income under § 119.*fn5 The only difference between the above examples and the situation in the present case is that the Institute was relieved in this case of the intermediate expense and task of preparing the groceries into meals for the taxpayer. Except for this one difference, the end result is the same in each case. The taxpayer eats food provided by the employer on the employer's premises so that the taxpayer is available on a moment's notice during mealtime to carry out the responsibilities of his employment. If such food were not furnished, the taxpayer might leave the employer's premises to eat elsewhere and thus be unavailable during mealtime. We see no logical reason why entitlement to the exclusion contained in § 119 should hinge upon who cooks the meal.
We also reject the reasoning of the Tougher case, supra, that the term "meals" should be given its ordinary meaning of ready-to-eat servings of food and not extended to include groceries where the groceries are supplied by the employer and consumed on the employer's premises. Our position finds support in the so-called "state trooper" cases, in which courts have held that state troopers are entitled to exclude under § 119 the amount of cash allowances for meals taken at roadside restaurants. See United States v. Keeton, 383 F.2d 429 (10th Cir. 1967); United States v. Morelan, 356 F.2d 199 (8th Cir. 1966); United States v. Barrett, 321 F.2d 911 (5th Cir. 1963); Saunders v. Commissioner Internal Revenue, 215 F.2d 768 (3d Cir. 1954);*fn6 but see Wilson v. United States, 412 F.2d 694 (1st Cir. 1969). While these cases are not exactly on point,*fn7 they nevertheless show that courts have focused primarily on the "convenience of the employer" test in determining whether an employee is entitled to an exclusion under § 119 and ...