Ricky Schmidt and Suzetta J. Schmidt - Page 19

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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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Last modified: May 25, 2011