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COMMISSIONER INTERNAL REVENUE v. KOWALSKI ET UX.

November 29, 1977

COMMISSIONER OF INTERNAL REVENUE
v.
KOWALSKI ET UX.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Burger, Brennan, Stewart, White, Marshall, Blackmun, Powell, Rehnquist, Stevens

Author: Brennan

[ 434 U.S. Page 78]

 MR. JUSTICE BRENNAN delivered the opinion of the Court.

This case presents the question whether cash payments to state police troopers, 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),*fn1 and, if so, are otherwise excludable under § 119 of the Code, 26 U.S.C. § 119.*fn2

[ 434 U.S. Page 79]

     I

The pertinent facts are not in dispute. Respondent*fn3 is a state police trooper employed by the Division of State Police of the Department of Law and Public Safety of the State of New Jersey. During 1970, the tax year in question, he received a base salary of $8,739.38, and an additional $1,697.54*fn4 designated as an allowance for meals.

The State instituted the cash meal allowance for its state police officers in July 1949. Prior to that time, all troopers were provided with midshift*fn5 meals in kind at various meal stations located throughout the State. A trooper unable to eat at an official meal station could, however, eat at a restaurant and obtain reimbursement. The meal-station system proved unsatisfactory to the State because it required troopers to leave their assigned areas of patrol unguarded for extended

[ 434 U.S. Page 80]

     periods of time. As a result, the State closed its meal stations and instituted a cash-allowance system. Under this system, troopers remain on call in their assigned patrol areas during their midshift break. Otherwise, troopers are not restricted in any way with respect to where they may eat in the patrol area and, indeed, may eat at home if it is located within that area. Troopers may also bring their midshift meal to the job and eat it in or near their patrol cars.

The meal allowance is paid biweekly in advance and is included, although separately stated, with the trooper's salary. The meal-allowance money is also separately accounted for in the State's accounting system. Funds are never commingled between the salary and meal-allowance accounts. Because of these characteristics of the meal-allowance system, the Tax Court concluded that the "meal allowance was not intended to represent additional compensation." 65 T.C. 44, 47 (1975).

Notwithstanding this conclusion, it is not disputed that the meal allowance has many features inconsistent with its characterization as a simple reimbursement for meals that would otherwise have been taken at a meal station. For example, troopers are not required to spend their meal allowances on their midshift meals, nor are they required to account for the manner in which the money is spent. With one limited exception not relevant here,*fn6 no reduction in the meal allowance is made for periods when a trooper is not on patrol because, for example, he is assigned to a headquarters building or is away from active duty on vacation, leave, or sick leave. In addition, the cash allowance for meals is described on a state police recruitment brochure as an item of salary to be received in addition to an officer's base salary and the amount of the meal allowance is a subject of negotiations between the State and the police troopers' union. Finally, the amount of an officer's

[ 434 U.S. Page 81]

     cash meal allowance varies with his rank*fn7 and is included in his gross pay for purposes of calculating pension benefits.

On his 1970 income tax return, respondent reported $9,066 in wages. That amount included his salary plus $326.45 which represented cash meal allowances reported by the State on respondent's Wage and Tax Statement (Form W-2).*fn8 The remaining amount of meal allowance, $1,371.09, was not reported. On audit, the Commissioner determined that this amount should have been included in respondent's 1970 income and assessed a deficiency.

Respondent sought review in the United States Tax Court, arguing that the cash meal allowance was not compensatory but was furnished for the convenience of the employer and hence was not "income" within the meaning of § 61(a) and that, in any case, the allowance could be excluded under § 119. In a reviewed decision, the Tax Court, with six dissents,*fn9 held that the cash meal payments were income within the meaning of § 61 and, further, that such payments were not excludable under § 119.*fn10 65 T.C. 44 (1975). The Court of Appeals for

[ 434 U.S. Page 82]

     the Third Circuit, in a per curiam opinion, held that its earlier decision in Saundersv. Commissioner, 215 F.2d 768 (1954), which determined that cash payments under the New Jersey meal-allowance program were not taxable, required reversal. 544 F.2d 686 (1976). We granted certiorari to resolve a conflict among the Courts of Appeals on the question.*fn11 430 U.S. 944 (1977). We reverse.

II

A

The starting point in the determination of the scope of "gross income" is the cardinal principle that Congress in creating the income tax intended "to use the full measure of its taxing power." Helvering v. Clifford, 309 U.S. 331, 334 (1940); accord, Helvering v. Midland Mutual Life Ins. Co., 300 U.S. 216, 223 (1937); Douglas v. Willcuts, 296 U.S. 1, 9 (1935); Irwin v. Gavit, 268 U.S. 161, 166 (1925). In applying this principle to the construction of § 22(a) of the Internal Revenue Code of 1939*fn12 this Court stated that "Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their [nature, but intended] to tax all

[ 434 U.S. Page 83]

     gains except those specifically exempted." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-430 (1955), citing Commissioner v. Jacobson, 336 U.S. 28, 49 (1949), and Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 87-91 (1934). Although Congress simplified the definition of gross income in § 61 of the 1954 Code, it did not intend thereby to narrow the scope of that concept. See Commissioner v. Glenshaw Glass Co., supra, at 432, and n. 11; H.R. Rep. No. 1337, 83d Cong., 2d Sess., A18 (1954); S. Rep. No. 1622, 83d Cong., 2d Sess., 168 (1954).*fn13 In the absence of a specific exemption, therefore, respondent's meal-allowance payments are income within the meaning of § 61 since, like the payments involved in Glenshaw Glass Co., the payments are "undeniabl[y] accessions to wealth, clearly realized, and over which the [respondent has] complete dominion." Commissioner v. Glenshaw Glass Co., supra, at 431. See also Commissioner v. LoBue, 351 U.S. 243, 247 (1956); Van Rosen v. Commissioner, 17 T.C. 834, 838 (1951).

Respondent contends, however, that § 119 can be construed to be a specific exemption covering the meal-allowance payments to New Jersey troopers. Alternatively, respondent argues that notwithstanding § 119 a specific exemption may be found in a line of lower-court cases and administrative rulings which recognize that benefits conferred by an employer on an employee "for the convenience of the employer" - at least when such benefits are not "compensatory" - are not income within the meaning of the Internal Revenue Code. In responding to these contentions, we turn first to § 119. Since we hold that § 119 ...


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