1969 U.S. Tax Ct. LEXIS 195">*195
T, an employee of the Federal Aviation Agency (FAA) lived together with his wife and children on Wake Island. They purchased supplies (consisting primarily of groceries) from an FAA commissary for family use, paying cash therefor on a monthly basis.
51 T.C. 737">*737 The Commissioner determined deficiencies in income tax in the amounts of $ 354.49 for 1963 and $ 320.96 for 1964. Petitioner Michael Tougher was an employee of the Federal Aviation Agency (FAA), stationed at Wake Island where he lived with his wife and children in a house which he rented from the Government. He and his wife purchased supplies (consisting primarily of groceries) for family 51 T.C. 737">*738 use at a commissary maintained by FAA. The family had most of its meals at the house in which they resided. The principal issue is whether the cost of the supplies may be "excluded" or deducted from gross income as "the value of * * * meals * * * furnished to * * * [the employee] by his employer * * * on the business premises of the employer" under
FINDINGS OF FACT
Many of the facts have been stipulated by the parties and are incorporated herein by this reference.
Petitioners, husband and wife, lived on Wake Island in the central Pacific Ocean at the time of filing the petition in this case. They filed joint income tax returns for 1963 and 1964 with the appropriate office1969 U.S. Tax Ct. LEXIS 195">*197 of the Internal Revenue Service. The husband will sometimes hereinafter be refered to as petitioner.
During the years at issue, petitioner was an electronic technician employed by the Federal Aviation Agency (FAA) at its facilities on Wake Island. He worked on electronic systems located at various places on the island. He was on call 24 hours a day, and, while his normal work week was 48 hours, afterhours calls occurred about three times a week, resulting in an average workweek of 54 hours. During the years at issue, petitioners and their children lived in a duplex residence on Wake Island provided by the FAA. Petitioners had three children in 1963 and four children in 1964. The FAA required all employees as a condition of their employment to live on the island in FAA housing. Petitioners paid rent on their house by means of a payroll deduction.
Wake Island is located in the middle of the Pacific Ocean, approximately 2,500 miles from Hawaii and 2,000 miles from Japan. What is commonly referred to as Wake Island is actually three small atolls in the shape of a horseshoe; the largest and center atoll, Wake, is connected to the smaller atolls, Peale and Wilkes, by means of a 1969 U.S. Tax Ct. LEXIS 195">*198 bridge and a causeway, respectively. As used herein, the term "Wake Island" refers to all three atolls. It is 11 miles long and 3 miles square; it is flat with the highest point 12 feet above sea level.
Wake Island is a United States possession, used primarily as a refueling station for military and commercial aircraft. Roughly 75 percent of all transpacific air traffic uses Wake Island for refueling purposes. The island is administered by the FAA pursuant to an agreement with the Secretary of the Interior that all executive, legislative, and judicial authority vested in the Secretary shall be exercised by such persons as may be designated by the administrator of the FAA. Part 165 of the Federal Aviation Regulations is the Wake Island51 T.C. 737">*739 Code,
During the years at issue, the population of Wake Island was approximately 1,350, of whom about 290 were FAA employees and about 285 were dependents of FAA employees. About 128 FAA employees lived with their families on Wake Island (such employees are sometimes hereinafter referred to as accompanied employees); the other FAA employees either had no families or were not accompanied by them (such employees are sometimes hereinafter referred to as unaccompanied employees or bachelors regardless of whether they were in fact unmarried). The Wake Island Area Manager preferred to have accompanied persons employed on the island to insure greater continuity of service. The other individuals on the island included persons associated with Pan American Airways, "Standard Oil," the U.S. Navy, the U.S. Coast Guard, a Military Air Command contractor from Los Angeles, and the Facilities Management Corporation.
The food facilities on Wake Island included an FAA central dining room or mess hall, an FAA commissary, a Pan American mess for Pan American employees, a Facilities Management Corporation mess for nongovernment employees, a restaurant or 1969 U.S. Tax Ct. LEXIS 195">*200 snack shop operated privately pursuant to contract in conjunction with a bowling alley (Al Ching's), and an air terminal coffee shop (also operated by Al Ching).
The FAA facilities were established pursuant to various public laws and agency policy directives.
Civil Aeronautics Administration 1 Order BU 2500.11, dated February 23, 1951, states in part:
Accordingly, in order to discharge the responsibilities imposed upon the CAA by Section 10 of P.L. 647 and at the same time to maintain the integrity of funds as appropriated by Congress it shall be the policy of the Civil Aeronautics Administration to:
(1) furnish, preferably through concessionaires, such items, facilities, and services as fall within the scope of Section 10(a) of the Act; if such items, facilities, and services cannot be furnished through concessionaires they should be provided for directly by the CAA;
(2) charge the users of such items, facilities or services at rates specified in 51 T.C. 737">*740 the Federal Register, or, when not specified in the Federal Register, at rates approved by the Washington office;
(3) on an agency-wide basis, reimburse the S & E, CAA appropriation from which the costs of such additional items, 1969 U.S. Tax Ct. LEXIS 195">*201 facilities, or services were paid, from funds received as a result of direct sale or charge, with that portion of collections which is equivalent to the cost of such additional items, facilities, or services, incurred pursuant to P.L. 647;
This order was superseded by FAA Order OA2500.5, dated February 28, 1964, which provides in part:
4. b.
* * * *
5. b(3)
FAA Regional Order PC-4230.1, effective on February 1, 1961, provides in pertinent part:
3.
* * * *
5. 1969 U.S. Tax Ct. LEXIS 195">*203
a.
b.
51 T.C. 737">*741 c.
a.
b.
c.
1969 U.S. Tax Ct. LEXIS 195">*205 FAA Pacific Region Notice PC4239.1 CH3, dated February 1, 1963, provides in part: "All bachelor-status employees must take their meals at the central dining room."
The FAA furnishes complete meal service at its messhall to its unaccompanied employees. The cost of the three meals per day to the unaccompanied employees during the years at issue was $ 1.50 until June 9, 1963, and $ 1.75 thereafter. This charge was deducted from the pay of unaccompanied employees whether they ate at the messhall or not, except that an adjustment could be made if more than 5 consecutive days were missed. Accompanied FAA employees and their dependents could dine at the FAA messhall at the discretion of the island manager, but could not do so on a permanent basis. Food for the messhall was ordered on the basis of the number of unaccompanied employees to be served, and accompanied personnel could be served only if sufficient supplies were available. On the average of four times a year for periods of 1 to 4 weeks, food supplies reached such a low level that messhall privileges to accompanied personnel had to be suspended. The messhall prices charged to accompanied employees and their dependents during1969 U.S. Tax Ct. LEXIS 195">*206 the years at issue were $ 1 for breakfast, $ 1.25 for lunch, and $ 2 for dinner.
The only source of food for home consumption that could be purchased on Wake Island was the FAA commissary. It was the equivalent of a small supermarket, offering quality items generally without a choice of brands. Prices at the commissary were fixed so as to equal the average of the prices prevailing at three representative markets 51 T.C. 737">*742 in Honolulu plus 3 1/2 percent in lieu of sales tax (equivalent to the Hawaii sales tax). The commissary was open 4 hours a day every other day. Payment for items purchased at the commissary was made in cash, either at the time of purchase or on a monthly basis. All residents of Wake Island, whether or not FAA employees, were generally allowed to shop at the FAA commissary, but, as occasionally happened, when supplies became low, shopping privileges were restricted to FAA personnel. FAA studies showed that it was cheaper for it to maintain the commissary than to feed accompanied employees and dependents in the messhall. Cost studies by private concessionaires showed that it would be "better" to continue to run the commissary as an FAA facility.
FAA employees1969 U.S. Tax Ct. LEXIS 195">*207 could dine at the Pan American and Facilities Management Corporation messhalls by invitation only. Al Ching's bowling-alley restaurant could accommodate between 35 and 50 persons at one time; the record does not disclose the rate of turnover of patrons or the total number that could be served in a day. Since the restaurant was popular, reservations were necessary to ensure accommodations, and its food supplies at times ran low so that some items on the menu were not always available. If the FAA had closed the commissary and had not permitted accompanied employees to eat at its messhall, there would not have been adequate facilities on the island to accommodate the accompanied employees and their dependents on a regular, full-time basis. No edible food could be grown on the island.
There was no requirement that accompanied employees purchase their food from the commissary. On a few occasions, petitioner and others on the island joined together to have meat supplies from Hawaii shipped to them at Wake Island. Because of a Federal law regarding meat inspection, the group was unable to continue this plan, and later had meat shipped from California. This method of obtaining meat1969 U.S. Tax Ct. LEXIS 195">*208 was used twice by petitioner during the years at issue, but it was felt that the trouble and expense involved more than offset the benefits derived from the plan. On a number of occasions various employees combined to form their own "co-op," ordering food supplies from Honolulu and the mainland in case lots.
Section 591.203 of the Federal Personnel Manual Supplement provides that a "differential" of 25 percent of basic compensation shall be paid on Wake Island. The same section provides that differentials are based on -- "(a) extraordinarily difficult living conditions, (b) excessive physical hardship, or (c) notably unhealthful conditions * * *."
Petitioners and their children ate most of their meals at home during the years at issue. The meals were prepared by Mrs. Tougher from food purchased at the FAA commissary. Petitioners ate at the FAA 51 T.C. 737">*743 mess three or four times during the years at issue, and on occasion they ate dinner at Al Ching's to break the monotony. Petitioners spent $ 1,611.34 in 1963 and $ 1,534.26 in 1964 for items purchased at the FAA commissary. These amounts included food used for the meals of petitioners and their children. Nonfood items accounted1969 U.S. Tax Ct. LEXIS 195">*209 for about 5 percent of these figures and included household maintenance items such as soap, ammonia, mops, brooms, and household cleaners, but not items such as toiletries.
On their 1963 joint income tax return, petitioners reported $ 9,822.43 as wages or salary. An attached schedule stated in part:
| Gross wages reported on W-2 Form | $ 12,507.64 | |
| Lodging | $ 1,073.87 | |
| Food | 1,611.34 | |
| 2,685.21 | ||
| Total | 2,685.21 | |
| Taxable income | 9,822.43 |
On their 1964 joint income tax return, petitioners reported $ 14,071.59 as wages or salary. They subtracted $ 2,674.47 as "Adjustments" in arriving at "Total income" (adjusted gross income). An attached schedule, similar to that included in their 1963 return, disclosed that the amount of "Adjustments" consisted of $ 1,140.21 attributable to "lodging" and $ 1,534.26 attributable to "Food."
In his notice of deficiency, the Commissioner considered as "unallowable deductions" sums for "food purchases" in the amounts of $ 1,611.34 for 1963 and $ 1,534.26 for 1964.
OPINION
Petitioners seek the benefit of
1969 U.S. Tax Ct. LEXIS 195">*211 It is important to bear in mind the history of the statutory provisions involved. Prior to 1954 there was no statute whatever specifically dealing with the problem. However, a line of cases and rulings had developed in which the value of lodging or meals furnished by an employer to his employee in one set of circumstances or another was held not to represent income to the employee under the general provisions of the law defining gross income. 31969 U.S. Tax Ct. LEXIS 195">*213 Not only was the furnishing of such tax-free benefits susceptible of abuse, but there was such confusion as to the proper test to be applied to determine the tax-free status of meals and lodging that
1969 U.S. Tax Ct. LEXIS 195">*214 Thus, wholly apart from the difficulties arising from the problem whether the sale of meals for a charge constitutes "furnishing" such meals to an employee, we think it clear that the sale of groceries is not the equivalent of furnishing "meals." It is hornbook law that unless there is a compelling reason to the contrary the words of a statute must be given their ordinary and usual meaning. We think it puts too much strain on language to treat the word "meals" as meaning a sack of groceries and some other household supplies purchased at the commissary for family consumption or use at home.
The word "meals" connotes to us food that is prepared for consumption at such recognized occasions as breakfast, lunch, dinner, or supper, or the equivalent thereof. It does not ordinarily mean a bag of potatoes, a tin of coffee, a box of salt, a can of peas, 10 pounds of flour, a package of rice, a bottle of ketchup, a jar of mayonnaise, or an uncooked chicken. To be sure, these items, or portions of some of them, can be processed and combined with other items so as to produce "meals," but in their raw form they are not ordinarily regarded as meals, and in the absence of persuasive evidence 1969 U.S. Tax Ct. LEXIS 195">*215 pointing in the other direction, it is our judgment that Congress did not use the term "meals" in that sense. In fact the emphasis in
It is true that in
We do not pause to consider various other knotty problems that are suggested by this case -- e.g., whether meals furnished to the wife and children of the employee qualify as meals "furnished to him," cf.
1. The Civil Aeronautics Administration (CAA) was the predecessor of the FAA.↩
2.
There shall be excluded from 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 -- (1) in the case of meals, the meals are furnished on the business premises of the employer, or (2) 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.↩
3. In determining whether the value of such meals or lodging furnished in kind should be added to the employee's gross income, emphasis was sometimes placed upon whether they were furnished for the convenience of the employer, and at times upon whether they were intended as additional compensation to the employee. See, e.g., O.D. 265,
4. See H. Rept. No. 1337, 83d Cong., 2d Sess., p. 18, A38-A39; S. Rept. No. 1622, 83d Cong., 2d Sess., p. 190-191;
5. S. Rept. No. 1622, 83d Cong., 2d Sess., states (p. 190): "
6. In
However, because of the general confusion in this field we do not rest our decision on this point, particularly since in our view the supplies purchased at the commissary do not qualify as "meals" under the statute in any event. We note also that the confusion in this area has been enhanced rather than cleared up by the cases dealing with the question whether cash allowances for meals paid to highway patrolmen are excludable under
