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employee to exclude from income the value of any meals furnished
by an employer for the employer’s convenience and on the
employer’s premises. Commissioner v. Kowalski, 434 U.S. 77,
84 (1977). Employee meals furnished without a charge on the
employer’s premises are considered to be within section 119 if
the employer furnished the meals for a “substantial
noncompensatory business reason”, the presence of which is a
factual determination. Sec. 1.119-1(a)(2)(i), Income Tax Regs.
In making this determination, we are guided by section
1.119-1(a)(2)(ii), Income Tax Regs., which lists examples of
substantial noncompensatory business reasons. We are also guided
by a directive in respondent’s regulations that all employee
meals are considered furnished for a substantial noncompensatory
business reason if the employer: (1) Furnished the meals at its
place of business and (2) had a substantial noncompensatory
business reason for furnishing the meals to each of substantially
all of the employees who were furnished the meals. Sec.
1.119-1(a)(ii)(e), Income Tax Regs.
Respondent argues that petitioners cannot meet the
revenue/operating cost test because they earned no revenue on the
employee meals. Respondent claims that section 1.132-7(a)(2),
Income Tax Regs., applies only when employees pay for their
meals, some of which are excludable from gross income under
section 132(e) and the rest of which are excludable under section
119. Respondent claims that the Congress intended to allow a
full deduction for employee meals only when the meals were
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