Commissioner v. Kowalski

Commissioner v. Kowalski
Supreme Court of the United States
Argued October 12, 1977 Decided November 29, 1977
Full case name: COMMISSIONER OF INTERNAL REVENUE v. KOWALSKI ET UX. Citations: 434 U.S. 77
Holding
1. In the absence of a specific exemption, the cash meal allowance payments are included in gross income under § 61(a), since they are "undeniabl[y] accessions to wealth, clearly realized, and over which the [trooper has] complete dominion." Commissioner v. Glenshaw Glass Co., 348 U. S. 426, 431. P P. 82-84. 2. The payments are not subject to exclusion from gross income under Page 434 U. S. 78
Court membership
Chief Justice: Warren E. Burger Associate Justices: William J. Brennan, Jr., Potter Stewart, Byron White, Thurgood Marshall, Harry Blackmun, Lewis F. Powell, Jr., William Rehnquist, John Paul Stevens
Case opinions
Majority by: BRENNAN Joined by: STEWART, WHITE, MARSHALL, POWELL, REHNQUIST, and STEVENS Dissent by: BLACKMUN Dissent by: BURGER

Commissioner v. Kowalski, 434 U.S. 77 (1977), is a decision of the United States Supreme Court relating to taxation of meals furnished by an employer. ^[1]In this case, the Court interpreted Internal Revenue Code §119(a)-(b)(4) and (d) and Treas. Reg. §1.119-1.^{[2] [3]}

[edit] Facts

The State of New Jersey instituted a cash meal allowance for its state police officers in July of 1949. Before that, troopers were provided a mid-shift meal at one of several meal stations located throughout the State. The State had decided that this system was unsatisfactory, as it required troopers to leave their patrol areas unattended for extended periods of time. The new system provided troopers with a cash allowance, which troopers could use to purchase a meal at a location within their patrol area, thus making it unnecessary for them to leave the area unmonitored.

The meal allowance was paid bi-weekly in advance and was included, although separately, with a troopers salary. The money was also separately accounted for in the State’s accounting system, and funds from the meal allowance account were never mixed with the salary accounts.

Troopers were not required to spend the allowance on mid-shift meals, nor were they required to account for the manner in which the money was spent. This meant that troopers were allowed to eat at home if their home was within their patrol area, or to bring a meal with them to eat in or near their patrol cars.

[edit] Kowalski

Kowalski was a state trooper employed by the Division of State Police of the Department Law and Public Safety of the State of New Jersey. On his 1970 income tax return, Kowalski reported $9,066 in wages. That amount included his salary plus $326.45 which represented cash meal allowances. The remaining meal allowances, totaling $1,371.09, were not reported. The Commissioner believed that this amount should have been included in income, and determined a tax deficiency.

Kowalski argued that the cash meal allowance was not compensatory, but was furnished for the convenience of the employer and therefore wasn’t income under I.R.C. §61(a), and that alternatively, it was excluded under I.R.C. §119.

[edit] Issue

In this case, the Court decided whether cash payments to state troopers, like Kowalski, designated as meal allowances, are included in gross income under §61(a) of the Internal Revenue Code of 1954, 26 U.S.C. §61(a), and if so, whether they are excludable under §119 of the Code, 26 U.S.C. §119.

[edit] Holding

The Supreme Court held that the payments were includable as gross income under §61(a), and furthermore, they were not excludable under §119.

[edit] Reasoning

Justice Brennan began the majority opinion by restating the general principle that in the absence of a specific exception, the meal allowance payments, like all “income” is included under I.R.C. §61, since the payments are “gross income” under Glenshaw Glass.

[edit] Meals in kind

The Court went on to reject Kowalski’s argument that I.R.C. §119 excludes the cash meal allowance. The Court pointed out that this section applied only to meals, furnished by the employer, for the convenience of the employer, on the business premises of the employer. A key issue in the case was whether meals furnished by the employer were limited to meals furnished in-kind. Relying on the Senate legislative record regarding section 119, the Court held that Congress only intended meals in-kind furnished by the employer to be subject to exclusion from gross income. According to the Senate Report No. 1622 (1954),

"Section 119 applies only to meals...in kind...Any cash allowances for meals...received by an employee will continue to be includable to the extent that such allowances constitute compensation."^[4]

Without an express congressional exclusion of cash meal allowances, the Court would not read such payments into section 119.

[edit] Common Law Convenience of the Employer Exception

Kowalski argued that through a series of lower court and administrative rulings, noncompensatory (or for the convenience of the employer) benefits have been determined not includable in gross income.^[5] This common law "convenience of the employer" exception was not accepted by the Court. In rejecting this argument, the Court noted again the intent of Congress, finding that the drafting process of section 119 was intended to "end the confusion" of prior law.^[6] The Court held that section 119 "must therefore be construed as its draftsmen obviously intended it to be--as a replacement for the prior law, designed to "end its confusion."^[7]

[edit] Dissent

Justice Blackmun, joined by Chief Justice Burger, disagreed with the majority opinion. Blackmun agreed that the payments constituted income under I.R.C. §61, however, he disagreed with the Court's conclusion that the payments did not fall under the exception in I.R.C. §119. Specifically, Blackmun disputed that the statute was as clear and distinct as the majority's opinion suggested. Furthermore, Blackmun argued that the trooper's employer was the State of New Jersey, and therefore his business premise was "wherever the trooper is on duty in that State." ^[8]

He concluded,

“I fear that state troopers the country over, not handsomely paid to begin with, will never understand today’s decision. And I doubt that their reading of the Court’s opinion – if indeed, a layman can be expected to understand its technical wording – will convince them that the situation is as clear as the Court purports to find it.”

[edit] References

1. ^ COMMISSIONER V. KOWALSKI, 434 U. S. 77 (1977) - US Supreme Court Cases from Justia & Oyez
2. ^ US CODE: Title 26,119. Meals or lodging furnished for the convenience of the employer
3. ^ TaxAlmanac - Treasury Regulations, Subchapter A, Sec. 1.119-1
4. ^ Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems & Materials 81, Thomson West 2d ed (2007).
5. ^ Id.at 80.
6. ^ Id.at 82.
7. ^ COMMISSIONER V. KOWALSKI, 434 U. S. 77 (1977) - US Supreme Court Cases from Justia & Oyez
8. ^ COMMISSIONER V. KOWALSKI, 434 U. S. 77 (1977) - US Supreme Court Cases from Justia & Oyez

[edit] See also

• List of United States Supreme Court cases, volume 434