To: File
From: Group #8
Re: Case #1-Fred Murphy Executive Summary: Fred is the Executive Director of the Training School Unit of the American Institute for Mental Studies located in Oakland, California. This position is very demanding, and requires Fred to carry out many responsibilities including being available for all his students as 24 hours a day and handling any emergencies that may arise. He is, therefore, required to live on the premises of the Institute in a house furnished by the Institute. Additionally, Fred and his family are given free groceries from the Institute’s commissary. In 2007, the Institute provided Fred and his family with $5,000 in meals/groceries and $1,200 in nonfood items from the Institute’s commissary. Fred did not include these amounts in his taxable income for the year. The IRS audited Fred and determined that the groceries and nonfood items were not “meals.” The IRS, therefore, believes this $6,200 should have been included in Fred’s taxable income. Are groceries then considered equivalent to meals? Based on our research of various authorities, we have concluded that groceries are not equivalent to meals.

References

Comments
The Internal Revenue Code states that meals that can be excluded from taxable income must meet three requirements. These requirements are that the meals must be furnished by the employer, for the convenience of the employer, and on the business premises of the employer. If groceries are considered meals, they would meet these requirements and therefore, be excluded from gross income.

Treas Reg

Dr. Jacob’s situation in this case is very similar to the situation Fred Murphy is facing. Both live on the premises of their respective Institutes and have similar responsibilities requiring them to be available 24 hours a day. The Court of Appeals, District X ruled in favor of Dr. Jacob allowing him to exclude the groceries since they did meet the requirements set forth in the code regarding meals furnished to employees on the business premises.

Comm vs. Kowalski

In this case Mr. Tougher, Jr. was denied the exclusion of groceries from taxable income because they did not constitute meals in the ordinary sense. Tougher’s employer did not furnish him any meals because Congress did not intend for the term “meals” to include unprepared grocery items, such as a bottle of ketchup. In their raw form, these items are not ordinarily regarded as meals.