Stephanie Keri has just been elected the new mayor of St. Augustine. The city provides a furnished house for Stephanie Keri and her family to live in. The real estate has a value of $60,000 per year and all the maintenance fees are paid by the city. The tax question Stephanie needs answered is whether the $60,000 rent benefit is included in her taxable income. To begin my research I first went to the tax regulations to see the requirements the internal revenue service established for matters regarding lodging and exclusions.
The regulation sec. 1. 19-1(b), specifies that in order for an employee to not include housing from their gross income three test must be met. The mayor meets the first requirement by living on the employer’s premise. Additionally, the next requirement is that the employer must provide housing for the employer’s convenience. This requirement is fulfilled by the mayor living on property allowing her to throw social gatherings that are a requirement for being in social office. Finally, as a condition of her employment Stephanie must live on property to satisfy the mayors requirement of ceremonial obligations (Campbell).
Reviewing past court cases has provided insight into which way the court will rule in the mayor’s tax dilemma. Based on past precedents, I believe the court will rule in favor of not having the rent benefit included in the mayor’s taxable income. For instance, the district court ruled in favor of superintendent Virgil Erdelt for not including housing provided by the school district in his taxable income ([89-1 USTC ¶9226] Virgil L. Erdelt and Elaine E. Erdelt, Plaintiffs v. United States of America, Defendants).
The school superintendent lived in a house bought and furnished by the school district. The fair market value of the housing equated to $10,000 to $15,000 range. It was proven that superintendent Erdelt performed substantial segment of business activities. The boundaries of where he worked got extended to athletic facilities, garages, and administrative offices. Also, superintendent Erdelt was similar to Mayor Stephanie Keri because they were both required to accept lodging as a condition of employment.
To help justify his position that rent should not be included in his taxable income superintendent Erdelt was available to the entire district at all times. As a result of his open availability, he was always around for emergency situations and was able to watch over the grounds. The same can be said for Mayor Stephanie Keri. By living on the grounds she will be accessible a majority of the time, which allows her to better serve the citizens of St. Augustine. Furthermore, the school superintendent was required to live on the premise as a part of his condition of employment.
The mayor of St. Augustine has the same stipulation for meeting the requirements of her job. Additionally, at the end of the case it argues the home furnishings can be negotiated to a lower salary for the school superintendent. Similarly, Mayor Stephanie Keri could have her salary adjusted to make up for the city furnishing her residence. There has also been cases where the appeal court did not rule in favor of government employees. For example, Canal Zone police officer Ronald Benninghoff was required to live in government owned housing during the duration of his job.
The value of the housing was included in the police officer’s income. When appealed the tax court affirmed its decision that officer Benninghoff cannot exclude housing from his gross income ([80-1 USTC ¶9311] Ronald W. Benningho? , Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee). The appellant court cited that police officer Benninghoff failed to show a direct substantial relationship between the provisions of lodging and the law enforcement interests to his employer.
In other words, Mayor Keri can overcome this stipulation by proving she uses her housing for town obligations and less for her personal use. Furthermore, the appeal courts have ruled against government workers being able to exclude housing in their taxable incomes. This is demonstrated in the court case Guthrie F. Crowe and Sue V. Crowe v. the United States ([84-1 USTC ¶9327] Guthrie F. Crowe and Sue V. Crowe v. the United States). In this situation Judge Guthrie F.
Crowe for the district of the Canal Zone was not entitled to exclude the value of lodging and utilities furnished to him by his employer because the lodging was not located on the business premises of the employer. The third regulation where the employer makes it a condition to accept housing as stipulation of employment was not met by the judge. As a result, of not fulfilling requirement number three he cannot qualify to have housing excludable from his gross income. Fortunately, Mayor Stephanie Keri qualifies for all three conditions providing her a more probable advantage that the tax court will rule in her favor.
Nevertheless, if the tax court does not rule in favor of allowing the mayor to exclude housing from in her taxable income I would inform her about another benefit available to her. I would advise her to negotiate a cafeteria plan if she has to pay the higher taxes from having to include housing in her income. According to the IRS, accident and health benefit plans are included in a cafeteria plan (CICTATION). Stephanie Keri and her family would receive the benefit and she would not have to pay taxes on the plan.