106 T.C. 343 (T.C. 1996), 3433-95, Boyd Gaming Corp. v. Commissioner of Internal Revenue

Docket Nº:3433-95, 3434-95
Citation:106 T.C. 343, 106 T.C. No. 19
Opinion Judge:LARO, Judge
Party Name:BOYD GAMING CORPORATION, f.k.a. THE BOYD GROUP AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent; CALIFORNIA HOTEL AND CASINO AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Thomas P. Marinis, Jr. and J. Barclay Collins III, for petitioners. Paul L. Dixon, for respondent.
Case Date:May 22, 1996
Court:United States Tax Court
 
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Page 343

106 T.C. 343 (T.C. 1996)

106 T.C. No. 19

BOYD GAMING CORPORATION, f.k.a. THE BOYD GROUP AND SUBSIDIARIES, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent;

CALIFORNIA HOTEL AND CASINO AND SUBSIDIARIES, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 3433-95, 3434-95

United States Tax Court

May 22, 1996

An appropriate order denying both motions for partial summary judgment will be issued.

SYLLABUS

Ps provided " free" meals to their employees in private cafeterias located on their business premises. R determined that sec. 274(n)(1), I.R.C., limits Ps' deduction for the cost of these meals. R moves for partial summary judgment in her favor. Ps object to R's motion, arguing that they may deduct 100 percent of their cost under the de minimis fringe benefit exception of sec. 274(n)(2)(B), I.R.C., and that the applicability of this exception is a factual determination that has yet to be made. Ps also move for partial summary judgment in their favor, arguing that they may deduct 100 percent of the meals' cost under the bona fide sale exception of sec. 274(e)(8), I.R.C. Held : Ps may deduct 100 percent of the meals' cost if they are within the de minimis fringe benefit exception of sec. 274(n)(2)(B), I.R.C., and whether they are within this exception is an unanswered question of fact. Held, further : Ps' provision of the meals is not within sec. 274(e)(8), I.R.C.

Thomas P. Marinis, Jr. and J. Barclay Collins III, for petitioners.

Paul L. Dixon, for respondent.

OPINION

Page 344

LARO, Judge

These consolidated cases are before the Court on cross-motions for partial summary judgment. [1] Respondent moves for partial summary judgment in her favor, arguing that section 274(n)(1) limits petitioners' deductions for the cost of " free" food and beverages that they provided to their employees on petitioners' business premises. [2] Petitioners object to respondent's motion, arguing that a genuine issue of fact exists as to the applicability of an exception to section 274(n)(1); namely, whether the food and beverages are a de minimis fringe benefit under section 274(n)(2)(B). Petitioners also move for partial summary judgment in their favor, arguing that section 274(n)(1) does not apply because petitioners " sold * * * [the food and beverages to their employees] in a bona fide transaction for an adequate [and full] consideration in money or money's worth" . [3] See sec. 274(e)(8), (n)(2)(A). Respondent replied to petitioners' notice of objection, and she objected to petitioners' cross-motion. [4]

We hold that petitioners may deduct 100 percent of the cost of the food and beverages provided to their employees, if the food and beverages are within the de minimis fringe benefit exception of section 274(n)(2)(B). Whether petitioners are within this exception is a factual determination that is yet to be made. We also hold that petitioners' provision of the food and beverages is not within section 274(e)(8).

Unless otherwise stated, section references are to the Internal Revenue Code in effect for the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure. We refer to Boyd Gaming Corp., f.k.a. the Boyd Group

Page 345

and Subsidiaries, and California Hotel and Casino and Subsidiaries as Boyd and CHC, respectively.

Background [5]

Boyd and CHC are Nevada corporations whose principal offices were in Las Vegas, Nevada, when they petitioned the Court. For its taxable year ended June 30, 1988 (the 1987 taxable year), CHC was the common parent of an affiliated group of corporations that filed a consolidated Federal income tax return. CHC's affiliated group in its 1987 taxable year included: (1) Mare-Bear, Inc., doing business as Stardust Hotel & Casino (Stardust) and (2) Sam-Will, Inc., doing business as Fremont Hotel & Casino (Fremont). CHC sometimes did business as Sam's Town Hotel & Gambling Hall (Sam's Town).

For its taxable year ended June 30, 1989 (the 1988 taxable year), Boyd was the common parent of an affiliated group of corporations that filed a consolidated Federal income tax return. Boyd's affiliated group in its 1988 taxable year included: (1) CHC, which sometimes did business as Sam's Town, (2) Mare-Bear, Inc., doing business as Stardust, and (3) Sam-Will, Inc., doing business as Fremont.

At all times relevant herein, CHC, Stardust, Fremont, and Sam's Town (collectively referred to as the Properties) were located in Las Vegas, Nevada. Each of the Properties was a resort complex that had casino, hotel, and restaurant facilities. Some of the Properties had convention or amusement facilities. Each of the Properties had an employee cafeteria that was located on its premises. The cafeterias (Cafeterias) were separate from the public restaurants that were located on the Properties. The Cafeterias were used by petitioners to serve hot meals, cold foods, and snacks (collectively referred to as the meals) to only their employees.

Petitioners provided the meals to all of their on-duty employees, except for a small group of individuals who were allowed to eat in designated areas of the Properties' public restaurants, during the employees' work shifts. Petitioners provided the meals without any out-of-pocket cost to the

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employees. Petitioners provided the meals for a variety of operational reasons. Petitioners' provision of the meals was not discriminatory in favor of highly compensated employees.

Most, if not all, of the casinos in Las Vegas provided meals to their employees during the relevant years. In order to attract and keep employees, petitioners offered packages of compensation and benefits that were competitive in the marketplace. Meal benefits during an employee's shift were included in commonplace packages. [6] In consideration for the meal benefits, petitioners were able to require their employees to stay on the Properties' premises during their entire shift. An employee who left the premises during his or her shift, without authorization, was subject to disciplinary action up to and including discharge.

For the subject years, the Commissioner disallowed 20 percent of the deductions that petitioners reported for the cost of their employees' meals. According to the notices of deficiency, section 274(n) prohibits petitioners from deducting 20 percent of the meals' cost. In its petition, CHC alleges that it did not deduct 20 percent of the meals' cost for its 1987 taxable year, and that it was entitled to do so.

Discussion

The issue at hand is one of first impression. We must decide whether petitioners can deduct the full cost of the meals that they provided to their employees on their premises, or, alternatively, whether section 274(n)(1) limits their deduction to 80 percent of the meals' cost. Petitioners argue for the former, stating...

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