Court Opinion

ID: 9468000
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:01:38.630147+00
Date Added: 2024-06-11T17:40:37.897038
License: Public Domain

NELSON, Circuit Judge,
concurring:
The district court’s finding that Cox failed to satisfy the third element required for exclusion of the value of lodging under section 119 is not clearly erroneous, and I agree with Judge Choy that the decision below should be affirmed on that basis. I write separately to make clear that I harbor no misgivings about whether, as a general proposition, section 119 would ever apply to Cox’s situation. The applicable Treasury regulation, Treas.Reg. § 1.119-l(b), states plainly that section 119 applies under the circumstances present here. The Supreme Court’s Kowalski decision does not impair the validity of that regulation.
Treas.Reg. § 1.119-l(b) states, in pertinent part:
Lodging. The value of lodging furnished to an employee by the employer shall be excluded from the employee’s gross income if three tests are met:
(1) The lodging is furnished on the business premises of the employer,
(2) The lodging is furnished for the convenience of the employer, and
(3) The employee is required to accept such lodging as a condition of his employment.
... If the tests described in subparagraphs (1), (2), and (3) of this paragraph are met, the exclusion shall apply irrespective of whether a charge is made or whether, under an employment contract or statute fixing the terms of employment, such lodging is furnished as compensation.
The emphasized portion of the regulation was promulgated in response to the decision in Boykin v. Commissioner, 260 F.2d 249 (8th Cir. 1958), in which the court examined the applicability of § 119 to a situation quite similar to that of the instant case. Boykin recognized that no difference exists between Taxpayer A, who receives a salary of $10,000 along with $5,000 worth of lodging at no charge, and Taxpayer B, who receives a salary of $15,000 from which $5,000 is deducted for the same lodging. Economically, both enjoy a “net” salary of $10,000 and receive $5,000 worth of lodging. If the lodging otherwise qualifies for the § 119 exclusion, Boykin tells us, both taxpayers are entitled to claim the exclusion.
The Commissioner acquiesced in the Boykin holding. Rev.Rul. 59-307, 1959-2 C.B. *17748. The regulation, following Boykin, states that the value of lodging that satisfies the three stated tests can be excluded from income “irrespective of whether a charge is made” for that lodging. The regulation thus effectively classifies the lodging as “in kind,” for purposes of section 119, in both cases.
The Kowalski decision raises a spurious issue in this case, and it is unfortunate that it was ever introduced. Kowalski addressed an entirely different situation: cash allowances in lieu of meals. Thus Kowalski not only involved a different portion of the statute — the portion concerning meals, rather than lodging — it arose in circumstances where the employer did not furnish any meals at all. The employees in Kowalski received cash allowances as to which there was no requirement that the money be spent on meals. Employees could just as easily spend the money on something else. The allowances were indistinguishable from any other form of gross income, and the Supreme Court, drawing on the legislative history of § 119, held that it did not apply to such “cash reimbursements.” 434 U.S. at 84, 98 S.Ct. at 319.
The instant case involves lodging, rather than meals.1 More significantly, the instant case has no “allowance” aspect. Because of the payroll deduction, the taxpayer had no discretion to spend his lodging money on something else. Thus, although the lodging transaction is reflected on the taxpayer’s pay stub, no actual “cash payment” can be said to have occurred. Classifying the lodging as “in kind” seems entirely appropriate.
Kowalski did not, nor did it purport to, overrule the relevant aspect of Treas.Reg. § 1.119-l(b). This court would have no warrant to do so now. So long as the regulation implements the congressional mandate in some reasonable manner, United States v. Correll, 389 U.S. 299, 307, 88 S.Ct. 445, 449, 19 L.Ed.2d 537 (1967), this court’s duty would be to give effect to that regulation. National Muffler Dealers Association v. United States, 440 U.S. 472, 476-77, 99 S.Ct. 1304, 1306-07, 59 L.Ed.2d 519 (1979); United States v. Cartwright, 411 U.S. 546, 550, 93 S.Ct. 1713, 1716, 36 L.Ed.2d 528 (1973); Max Sobel Wholesale Liquors v. Commissioner, 630 F.2d 670, 672 (9th Cir. 1980).

. This difference is more important than it may at first seem, because of the difference in the treatment accorded meals and lodging under § 119. Thus, while both meals and lodging must satisfy two tests — they must be furnished on the employer’s premises, and they must be for the convenience of the employer — lodging alone requires satisfaction of a third test: the employee must be required to accept the lodging as a condition of employment. I find it difficult to imagine an analog to Kowalski in the lodging context, because it does not seem to me that a cash allowance program for lodging could coexist with the requirement that lodging be accepted as a condition of employment. This casts further doubt on the relevance of Kowalski to the instant case.