Commissioner v. Kowalski

Background

A New Jersey state police trooper received a separate cash meal allowance in 1970 instead of meals provided at official stations. The trooper reported part of the allowance as wages but omitted $1,371.09. The Internal Revenue Service audited, the Tax Court held the payments were taxable and not excludable under Section 119, and a Court of Appeals decision that had treated similar payments as nontaxable created a split among appellate courts.

Reasoning

The Court started from the broad definition of gross income in Section 61 and examined Section 119, which excludes only meals or lodging "furnished" to an employee for the convenience of the employer and only when they are provided on the employer’s business premises. The Court concluded Section 119 was meant to cover benefits furnished in kind, not cash payments. It reviewed decades of administrative rulings and cases and found Congress intended Section 119 to replace and clarify the old "convenience of the employer" rules. Because the New Jersey allowance was paid in cash and not shown to be necessary to let the trooper perform his duties on the employer’s premises, the allowance could not be excluded.

Real world impact

The ruling requires state troopers and similar employees to include cash meal allowances in taxable income unless Congress or regulation provides otherwise. It resolves conflicting appellate decisions by treating cash subsistence payments as presumptively compensatory, not excludable under Section 119.

Dissents or concurrances

Justice Blackmun (joined by the Chief Justice) dissented, arguing the in-cash/in-kind distinction is not clear in the statute and that the trooper’s on-duty locations effectively make meals furnished on the employer’s premises statewide, supporting exclusion.