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property insurance, property taxes, and depreciation related to
the farmhouse) qualify as employer-provided meals and lodging
expenses, excludable from the Schmidts’ income under section 119
and deductible by Hillside Dairy under section 162.
Meals and lodging furnished to an employee by his employer
are excluded from the employee’s gross income under section 119
if the meals and lodging are provided for the convenience of the
employer on the premises of the employer. In the case of
lodging, the employee must be required to accept the lodging on
the business premises of his employer as a condition of
employment.
Meals and lodging are furnished for the “convenience of the
employer” if there is a direct nexus between the meals and
lodging furnished and the asserted business interests of the
employer served thereby. McDonald v. Commissioner, 66 T.C. 223,
230 (1976). Petitioners assert that Mr. Schmidt, as the
corporation’s sole employee, was required to be available for
duty 24 hours a day.
Hillside Dairy leased the Schmidt farm to Mr. Schmidt.
Hillside Dairy contracted with Mr. Schmidt as a tenant, not as
its employee, to perform all necessary work.
It is well settled that “Ordinarily, taxpayers are bound by
the form of the transaction they have chosen; taxpayers may not
in hindsight recast the transaction as one that they might have
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