Under what circumstances can the value of lodging be excluded from gross income under 26 USC 119?

Business & Corporate, General, Tax

By Rayan F. Coutinho

Gross income means all income from whatever source derived, including compensation for services.  It includes income realized in any form, i.e., money, property, or services. If compensation for services is paid in the form of property, the fair market value of the property must be included in income.  Consequently, the value of those lodgings is includable in a taxpayer’s gross income unless specifically excludable under another provision of the Code.  Section 119 provides in relevant part as follows: “SEC. 119. MEALS OR LODGING FURNISHED FOR THE CONVENIENCE OF THE EMPLOYER. There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him by his employer for the convenience of the employer, but only if – *** (2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment. In determining whether meals or lodging are furnished for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals or lodging are intended as compensation.”

In order to avail himself of the exclusion provided thereby, a taxpayer must satisfy all three of the criteria set forth in section 119; i.e., (A) the lodgings must be furnished for the convenience of the employer, (B) on the business premises of the employer, and (C) the employee is required to accept the lodgings as a condition of his employment.  Failure to establish any one of these criteria suffices to preclude application of section 119.

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admin @ April 17, 2008