Commissioner of Internal Revenue v. Kowalski

• Decision Date: 29 November 1977
• Docket Number: No. 76-1095,76-1095
• Citation: 434 U.S. 77,98 S.Ct. 315,54 L.Ed.2d 252
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Robert J. KOWALSKI et ux
• Court: U.S. Supreme Court

54 L.Ed.2d 252

98 S.Ct. 315

434 U.S. 77

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

v Robert J. KOWALSKI et ux.

No. 76-1095.

Argued Oct. 12, 1977.

Decided Nov. 29, 1977.

Syllabus

New Jersey provides a cash meal allowance for its state police troopers, which is paid biweekly in advance in an amount varying with the trooper's rank and is included, although separately stated, with his salary and in his gross pay for purposes of calculating pension benefits. Although troopers are required to remain on call in their assigned patrol areas during their midshift break, they are not required to eat lunch at any particular location, and indeed may eat at home, nor are they required to spend the meal allowance on food. No reduction in the allowance is made for periods when a trooper is not on patrol. Respondents, a trooper and his wife, included only a part of the meal allowances received by the trooper in their 1970 federal income tax return and the Commissioner assessed a deficiency with respect to the remainder. The respondents argued in the Tax Court that the allowance was not income within § 61(a) of the Internal Revenue Code of 1954, which defines gross income as "all income from whatever source derived, including (but not limited to) . . . (1) Compensation for services, including fees, commissions, and similar items." In the alternative, they argued that the allowances were excludable from § 61 income because of § 119 of the Code, which creates an exclusion for "the value of any meals . . . furnished to [an employee] by his employer for the convenience of the employer, but only if . . . the meals are furnished on the business premises of the employer," and further provides that "[in] determining whether meals are furnished . . . for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals . . . are intended as compensation." The Tax Court rejected both contentions, but the Court of Appeals reversed. Held:

1. In the absence of a specific exemption, the cash meal-allowance payments are included in gross income under § 61(a), since they are "undeniabl[y] accessions to wealth, clearly realized, and over which the [trooper has] complete dominion." Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 476, 99 L.Ed. 483. P. 82-84.

2. The payments are not subject to exclusion from gross income under § 119, since § 119, by its terms, covers meals furnished by the employer and not cash reimbursements for meals. P. 84.

3. No specific exemption for the payments can be claimed on the basis of the once-recognized doctrine that benefits conferred by an employer on an employee "for the convenience of the employer" are not income within the meaning of the Internal Revenue Code, since it appears from the legislative history of § 119 that it was intended comprehensively to modify the prior law, both expanding and contracting the exclusion for meals previously provided, and therefore it must be construed as a replacement for the prior law, designed to end the confusion that had developed respecting the convenience-of-the-employer doctrine as a determinant of the tax status of meals. Pp. 84-95.

3rd Cir., 544 F.2d 686, reversed.

Stuart A. Smith, Washington, D. C., for petitioner.

Carl B. Cordes, New York City, for respondents.

Mr. Justice BRENNAN delivered the opinion of the Court.

This case presents the question whether cash payments to state police troopers, designated as meal allowances, are included in gross income under § 61(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 61(a),¹ and, if so, are otherwise excludable under § 119 of the Code, 26 U.S.C. § 119.²

I

The pertinent facts are not in dispute. Respondent ³ is a state police trooper employed by the Division of State Police of the Department of Law and Public Safety of the State of New Jersey. During 1970, the tax year in question, he received a base salary of $8,739.38, and an additional $1,697.54 ⁴ designated as an allowance for meals.

The State instituted the cash meal allowance for its state police officers in July 1949. Prior to that time, all troopers were provided with midshift ⁵ meals in kind at various meal stations located throughout the State. A trooper unable to eat at an official meal station could, however, eat at a restaurant and obtain reimbursement. The meal-station system proved unsatisfactory to the State because it required troopers to leave their assigned areas of patrol unguarded for extended periods of time. As a result, the State closed its meal stations and instituted a cash-allowance system. Under this system, troopers remain on call in their assigned patrol areas during their midshift break. Otherwise, troopers are not restricted in any way with respect to where they may eat in the patrol area and, indeed, may eat at home if it is located within that area. Troopers may also bring their midshift meal to the job and eat it in or near their patrol cars.

The meal allowance is paid biweekly in advance and is included, although separately stated, with the trooper's salary. The meal-allowance money is also separately accounted for in the State's accounting system. Funds are never commingled between the salary and meal-allowance accounts. Because of these characteristics of the meal-allowance system, the Tax Court concluded that the "meal allowance was not intended to represent additional compensation." 65 T.C. 44, 47 (1975).

Notwithstanding this conclusion, it is not disputed that the meal allowance has many features inconsistent with its characterization as a simple reimbursement for meals that would otherwise have been taken at a meal station. For example, troopers are not required to spend their meal allowances on their midshift meals, nor are they required to account for the manner in which the money is spent. With one limited exception not relevant here,⁶ no reduction in the meal allowance is made for periods when a trooper is not on patrol because, for example, he is assigned to a headquarters building or is away from active duty on vacation, leave, or sick leave. In addition, the cash allowance for meals is described on a state police recruitment brochure as an item of salary to be received in addition to an officer's base salary and the amount of the meal allowance is a subject of negotiations between the State and the police troopers' union. Finally, the amount of an officer's cash meal allowance varies with his rank ⁷ and is included in his gross pay for purposes of calculating pension benefits.

On his 1970 income tax return, respondent reported $9,066 in wages. That amount included his salary plus $326.45 which represented cash meal allowances reported by the State on respondent's Wage and Tax Statement (Form W—2).⁸ The remaining amount of meal allowance, $1,371.09, was not reported. On audit, the Commissioner determined that this amount should have been included in respondent's 1970 income and assessed a deficiency.

Respondent sought review in the United States Tax Court, arguing that the cash meal allowance was not compensatory but was furnished for the convenience of the employer and hence was not "income" within the meaning of § 61(a) and that, in any case the allowance could be excluded under § 119. In a reviewed decision, the Tax Court, with six dissents,⁹ held that the cash meal payments were income within the meaning of § 61 and, further that such payments were not excludable under § 119.¹⁰ 65 T.C. 44 (1975). The Court of Appeals for the Third Circuit, in a per curiam opinion, held that its earlier decision in Saunders v. Commissioner of Internal Revenue, 215 F.2d 768 (1954), which determined that cash payments under the New Jersey meal-allowance program were not taxable, required reversal. 544 F.2d 686 (1976). We granted certiorari to resolve a conflict among the Courts of Appeals on the question.¹¹ 430 U.S. 944, 97 S.Ct. 1578, 51 L.Ed.2d 791 (1977). We reverse.

II

A.

The starting point in the determination of the scope of "gross income" is the cardinal principle that Congress in creating the income tax intended "to use the full measure of its taxing power." Helvering v. Clifford, 309 U.S. 331, 334, 60 S.Ct. 554, 556, 84 L.Ed. 788 (1940); accord, Helvering v. Midland Mutual Life Ins. Co., 300 U.S. 216, 223, 57 S.Ct. 423, 425, 81 L.Ed. 612 (1937); Douglas v. Willcuts, 296 U.S. 1, 9, 56 S.Ct. 59, 62, 80 L.Ed. 3 (1935); Irwin v. Gavit, 268 U.S. 161, 166, 45 S.Ct. 475, 69 L.Ed. 897 (1925). In applying this principle to the construction of § 22(a) of the Internal Revenue Code of 1939 ¹² this Court stated that "Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature [, but intended] to tax all gains except those specifically exempted." Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 429-430, 75 S.Ct. 473, 476, 99 L.Ed. 483 (1955), citing Commissioner of Internal Revenue v. Jacobson, 336 U.S. 28, 49, 69 S.Ct. 358, 369, 93 L.Ed. 477 (1949), and Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 87-91, 55 S.Ct. 50, 51-53, 79 L.Ed. 211 (1934). Although Congress simplified the definition of gross income in § 61 of the 1954 Code, it did not intend thereby to narrow the scope of that concept. See Commissioner of Internal Revenue v. Glenshaw Glass Co., supra, at 432, 75 S.Ct. at 477 and n. 11; H.R.Rep. No. 1337, 83d Cong., 2d Sess., A18 (1954); S.Rep. No. 1622, 83d Cong., 2d Sess., 168 (1954); U.S.Code Cong. & Admin.News 1954, p. 4025.¹³ In the absence of a specific exemption, therefore, respondent's meal-allowance payments are income within the meaning of § 61 since, like the payments involved in Glenshaw Glass Co., the payments are "undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion." Commissioner of Internal Revenue v. Glenshaw Glass Co., ...