Kowalski was a policeman in
New Jersey. He received cash to pay for the cost of lunches that he ate
while on duty.
The rationale suggested that
when the public sees a police car, it tends to deter crime, so New Jersey
wanted the police out in the community and not at home eating lunch.
The IRS claimed that the lunch
money was taxable as gross income.
Kowalski argued that the
lunch money counted as meals furnished for the convenience of the
employer and was exempted from gross income by 26 U.S.C. §119.
The IRS argued that in order
to qualify under §119, the meals
have to be furnished on the business premises of the employer. Since
Kowalski wasn't eating at the police station, it doesn't count.
The IRS also argued that
Kowalski didn't receive a meal, he received cash. That's not the same
thing and it isn't covered by the §119 exclusion.
The US Supreme Court found for
The US Supreme Court found
that the meals were not covered under §119.
The Court found that money
is not food, and a plain language reading of §119 does not include cash paid for meals, only
for the meals themselves.
In general, the Tax Code
has been read to state that everything is includable as gross income under 26 U.S.C. §61(a) unless
it is explicitly excluded.
Kowalski argued that some
government employees got actual meals back at the police station, so it
would inequitable for him to have to pay taxes. However, the Court found
that this was a situation of horizontal inequity, and nothing in the Constitution or in the Tax
Code mandated horizontal equity.
Horizontal equity says that
taxpayers who have the same income should pay the same amount in taxes.