Rev. Rul. 59-409

Advice has been requested whether, for Federal income tax purposes, the value of meals and lodging furnished by a school to its resident faculty members and their families on the school premises is includible in gross income.

The officials of a boarding school require all of its faculty members to live and take their meals on the school premises. The quarters are chosen by the school officials and all meals are furnished to the faculty members, their families, and the students in one dining room, also on the business premises of the employer. Under this arrangement, the faculty members, all of whom have resident duties and are considered to be on call 24 hours per day, are in a position to supervise and preserve order among the students.

Section 119 of the Internal Revenue Code of 1954 provides, in part, that there shall be excluded from the 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, in the case of meals, they are furnished on the business premises of the employer or, 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. Similarly, section 31.3401(a)-1(9) of the Employment Tax Regulations provides that the value of any meals or lodging furnished to an employee by his employer is not subject to withholding if the value of the meals or lodging is excludable from the gross income of the employee.

Since the meals and lodging in the instant case are furnished on the school premises, for the convenience of the employer, and the faculty members are required to accept the lodging on such premises as a condition of their employment, it is held that the portion of the value of the meals and lodging furnished which is allocable to such faculty members themselves is not includible in their gross income and is not subject to the withholding of income tax. The foregoing will not apply for any term or period during the school year when the students are not in residence, in the absence of a showing that the faculty members' presence during such term or period is for the convenience of their employer.

Since the provisions of section 119 of the Code are applicable only to meals and lodging furnished by an employer to his employee, it is also held that the value of the meals and lodging furnished the faculty members' wives and children constitute additional compensation which is includible in the gross income of the faculty members.

Under section 3402(a) of the Code, every employer making a payment of wages shall deduct and withhold Federal income tax upon such wages. The term "wages," as used in section 3402, is defined in section 3401(a) of the Code to mean all remuneration for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash, with certain exceptions not here material. Since the value of the meals and lodging furnished the faculty members' wives and children constitute remuneration for services performed by the faculty members, it is subject to the withholding of income tax at the source by the school under section 3402 of the Code.