Boyd Gaming Corp. v. Comm'r of Internal Revenue
| Decision Date | 22 May 1996 |
| Docket Number | 3434-95.,Nos. 3433-95,s. 3433-95 |
| Citation | 106 T.C. No. 19,20 Employee Benefits Cas. 1245,106 T.C. 343 |
| Parties | 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. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Thomas P. Marinis, Jr. and J. Barclay Collins, III, for petitioners.
Paul L. Dixon, for respondent.
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.
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 and Subsidiaries, and California Hotel and Casino and Subsidiaries as Boyd and CHC, respectively.
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 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.
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 that section 274(n)(1) does not limit their deduction because their employee meals are: (1) De minimis fringe benefits under sections 132(e) and 274(n)(2)(B), or (2) goods sold in a bona fide transaction for an adequate and full consideration in money or money's worth under section 274(e)(8). Respondent argues for the latter, stating that none of the exceptions to section 274(n)(1) apply to the facts at hand because petitioners provided the meals to their employees without charge.
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials of phantom factual issues. Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Shiosaki v. Commissioner, 61 T.C. 861, 862 (1974). The concept of summary judgment is specifically recognized by this Court and is deeply ingrained in our procedural rules. Rule 121(a) provides that either party may move for summary judgment in its favor upon any or all parts of the legal issues in controversy. When either party makes such a motion, the opposing party must file “An opposing written response, with or without supporting affidavits, * * * within such period as the Court may direct.” Rule 121(b). A decision on the merits of a taxpayer's claim will then be rendered by way of summary judgment “if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.” Id.
Because summary judgment decides an issue against a party without the benefit of a trial, the Court grants such a remedy cautiously and sparingly, and only after carefully ascertaining that the moving party has met the requisite criteria. Associated Press v. United States, 326 U.S. 1, 6 (1945); Espinoza v. Commissioner, 78 T.C. 412, 416 (1982). The Court will not resolve disagreements over material factual issues in a summary judgment proceeding. Espinoza v. Commissioner, supra at 416; Matson Navigation Co. v. Commissioner, 67 T.C. 938, 951 (1977). A fact is material if it “tends to resolve any of the issues that have been properly raised by the parties.” 10A Wright et al., Federal Practice and Procedure: Civil, sec. 2725, at 93 (2d ed. 1983). The moving party must prove that there is no genuine issue of material fact, and factual inferences are viewed in the light most favorable to the nonmoving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); Kroh v. Commissioner, supra at 390; Preece v. Commissioner, 95 T.C. 594, 597 (1990).
We start our inquiry with the relevant text of section 274(n).7 Connecticut Natl. Bank v. Germain, 503 U.S. 249, 253-254 (1992); TVA v. Hill, 437 U.S. 153 (1978); United States v. American Trucking Associations, 310 U.S. 534, 543-544 (1940). Section 274(n) provides in part:
(1) In general.--The amount allowable as a deduction under this chapter for--
(A) any expense for food or beverages, and
* * *
shall not exceed 80 percent 8 of the amount of such expense or item which would (but for this paragraph) be allowable as a deduction under this chapter.
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