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Tax Litigation: The Week of
- Vassiliades v. Comm'r, T.C. Memo. 2023-1 |
- Simpson v. Comm'r, T.C. Memo. 2023-4|
January 9, 2023 | Jones, J. | Dkt. No. 16923-16 - Wondries v. Comm'r, T.C. Memo. 2023-5|
January 9, 2023 | Kerrigan, J. | Dkt. No. 13345-19 (deficiencies for deduction of farm and ranch expenses; evaluation of activity not engaged in for profit). - Decrescenzo v. Comm'r, T.C. Memo. 2023-7|
January 12, 2023 | Halpern, J. | Dkt. No. 16784-18
Smith v. Comm'r, T.C. Memo. 2023-06|
Summary: This is a deficiency case and a continuation of the Tax Court's opinion in Smith v. Commissioner, No. 5191- 20, 159 T.C. (
Smith was employed by
Smith was assigned
For each relevant year, Smith received a Form 1099-MISC, Miscellaneous Income, reporting as nonemployee compensation the value of his Housing Accommodation, and Smith reported those amounts on Schedule C-EZ, Net Profit From Business. Smith, through a professional preparer, later filed Forms 1040-X, Amended Returns, for taxable years 2016 and 2017, accompanied by revised Forms 1040. Smith again reported as gross receipts the value of the Housing Accommodation shown on the Forms 1099-MISC for 2016 and 2017. But Smith claimed corresponding deductions for "employee benefit programs" in amounts equal to the value of the Housing Accommodation, which had the effect of excluding the value of the Housing Accommodation from gross income. In his 2018 return, Smith reported gross receipts equal to the value of his Housing Accommodation reflected on Form 1099-MISC and then again claimed a corresponding deduction for employee benefit programs.
After conducting an examination, the
Gross Income Under Section 119. Gross income generally includes all income from whatever source derived, including compensation for services. I.R.C. § 61(a). An employee may be able to exclude the value of lodging provided by the employer if certain conditions are met: (1) the lodging must be "furnished on the business premises of the employer," (2) the lodging must be "furnished for the convenience of the employer," and (3) the employee must be "required to accept such lodging as a condition of his employment." Treas. Reg. § 1.119-1(b); see I.R.C. § 119(a); Vanicek v. Commissioner, 85 T.C. 731, 737-38 (1985). If any one of the conditions is not met, the exclusion is not allowed. See Dole v. Commissioner, 43 T.C. 697, 705 (1965), aff'd per curiam, 351 F.2d 308 (1st Cir. 1965).
Business Premises of the Employer. The "business premises of the employer" generally means the employee's "place of employment." Treas. Reg. § 1.119- 1(c)(1). Lodging is considered located "on the business premises of the employer" if such lodging is furnished at a place where the employee performs a significant portion of his duties or on the premises where the employer conducts a significant portion of his business. Lodging is located on the business premises of the employer if (1) the living quarters constitute an integral part of the business property or (2) the company carries on some of its business activities there. The extent or boundaries of the business premises in each case is a factual question whose resolution follows a consideration of the employee's duties as well as the nature of the employer's business. The property must bear an integral relationship to the business activities of the employer. See Vanicek, 85 T.C. at 739-40; McDonald v. Commissioner, 66 T.C. 223, 230 (1976); Lindeman v. Commissioner, 60 T.C. 609 (1973); Dole v. Commissioner, 43 T.C. 697, 707 (1965).
Insights: Smith provides a good roadmap for evaluation of exclusion, under section 119, of housing benefits received by an employee as part of employment. Smith would have been better off had he not engaged the professional preparer to amend the 2016 and 2017 tax returns or to prepare the 2018 return, each of which claimed (but were ultimately denied) the exclusion of the Housing Accommodation as part of the reported "employee benefit program."
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