Question

Does the taxpayer recognize gross income in the following situations?

a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for her lunch, but she always eats in the company's cafeteria because it is quick and she is on a tight schedule. On average, she pays $2 for lunch that would cost $12 at a restaurant. However, if the prices in the cafeteria were not so low and the food was not so delicious, she would probably bring her lunch at a cost of $3 per day.
b. Scott is an executive for an international corporation located in New York City. Often he works late, taking telephone calls from the company's European branch. Scott often stays in a company-owned condominium when he has a late-night work session. The condominium is across the street from the company office.
c. Ira recently moved to take a new job. For the first month on the new job, Ira was searching for a home to purchase or rent. During this time, his employer permitted Ira to live in an apartment the company maintains for customers during the buying season. The month that Ira occupied the apartment was not during the buying season, however, and the apartment would not otherwise have been occupied.

Answer 1

a. Ava must include in her gross income $10 for every meal that is provided by her employer. The meals provided by Ava's employer are a convenience for her and the rest of the employees, the employer doesn't benefit form them. They should be considered a fringe benefit, and therefore, they are taxable.

b. Scott doesn't need to include any of the lodging expenses in his gross income. In this case, the lodging is provided to Scott but the employer benefits from it (convenience for the employer, not the employee).

c. Ira doesn't need to include the use of the apartment in his gross income. Even though Ira benefits from using the apartment, it represents no additional cost to the employer since the apartment would be empty if Ira didn't use it (no benefit lost or extra cost).