Question

Z Inc. owns and operates several businesses, including six hotels and two real estate agencies. R, an employee of Z, spends three nights free of charge in one of Z’s hotels in Indiana. Is the value for the lodging nontaxable to R, assuming the information below? Explain.

a. R works for one of the real estate agencies.

b. R tends bar in one of the hotels in Maine.

c. R is a tax accountant in Z’s corporate headquarters where the tax records of all of Z’s businesses are maintained.

Answer 1

a) Solution: The value for the lodging will be taxable to R

Explanation: Since the employer does not appear to have a good business purpose for providing the lodging thus Section 119 would not applicable in this situation. Thus because he works for another business line - The real estate agency, not the hotel business thus value of the lodging is taxable

b) Solution: The value for the lodging will be non-taxable to R

Explanation: The value for the lodging to R will be excluded as a no-additional- cost service. The exclusion is applicable to the lodging's value for himself, his spouse, and the dependent children as he works in the hotel business of the employer.

c) Solution: The value for the lodging will be non-taxable to R

Explanation: The value of the lodging to R may be excluded as a no-additional-cost service. Employees identified with more than one business line are allowed to exclude the gains received from all of them. (The exclusion extends to gains given under a written reciprocal agreement by another employer who is also in the same business line.) (Reg. § 1.132-4 T(a)(1)(iv)(A).)