Before BIGGS, Chief Judge, and MARIS and GOODRICH, Circuit Judges.
The taxpayer and petitioner, Saunders, since 1947 has been a trooper of the New Jersey State Police. A brochure, sent by the State of New Jersey to prospective applicants for employment as troopers, contains the following statement: "Your salary[:] While in training as a recruit, you receive $200 per month. Following graduation you advance to the annual minimum salary of a trooper, which is $3,480 plus maintenance. Annual increments of $180 are granted until you receive a maximum salary of $4,380 plus maintenance." Having been accepted as a recruit, the taxpayer became a trooper, and in 1950, the taxable year in question, he was paid $3,605. This included $665 given to him in lieu of rations, an item to be discussed at more length hereinafter. During 1950 Saunders maintained a home and family at Millville, New Jersey.
The New Jersey State Police, a part of the Department of Law and Public Safety, was organized in 1921 pursuant to statutory authority.R.S.N.J. Title 53, §§ 53:1-1 et seq., N.J.S.A. Saunders enlisted, as we have indicated, in 1947 for the prescribed two year period and has re-enlisted at regular two year intervals ever since. A trooper of the State Police of New Jersey is under discipline somewhat analogous to that of the members of the armed forces of the United States. He may not withdraw from the force prior to the end of an enlistment without permission of the Superintendent of the State Police.If he does withdraw without permission he is guilty of a misdemeanor. The force is organized with a resemblance to military organization. The Superintendent has the rank of colonel, and is the commander of the force. Below him is the Deputy Superintendent who has the rank of major. The lower ranks include captain, lieutenant, staff sergeant, sergeant, and trooper.The State of New Jersey is divided into two regions. The taxpayer is employed in Region A. This region is divided into five districts, each headed by a lieutenant, and each district has three stations headed by sergeants to which are attached troopers ranging in numbers from five to twelve. All members of the force from the highest to the lowest take a solemn oath of office.
Every trooper is subject to call 24 hours a day, 7 days a week, and 52 weeks a year.Of the 720 hours in a thirty-day month, each trooper under normal conditions is on active duty 390 hours. The 330 off-duty hours are comprised of 6 days a month off, plus 10 over-night passes of 15 hours each and 9 passes of 4 hours each. Except when on a day off, pass or vacation (of 2 weeks a year), Saunders must live at Mays Landing, New Jersey, the station to which he is assigned. He is not permitted to go to his home which is only 22 miles from that station. At the beginning of each month a schedule is posted for him. This is subject to change without notice and Saunders may not only have his time off changed but he may be required to work for more than the prescribed 390 hours per month if the circumstances should require it. His shifts vary and he may be on duty at any time of the day or night. He is subject to call every day of the year and, when on a day off, pass or vacation, must keep his station informed as to his whereabouts so that he may be summoned in case of an emergency. His duties include road patrol, patrol of rural farm areas, duties at the station house, and answering criminal complaints. Saunders may also, at the pleasure of his superiors, be assigned to an entirely new station at any time.
Prior to July 1, 1949, Saunders and the other troopers were supplied with meals at their stations at the expense of the State. But if their duties were such that they could not return to their stations for meals they would purchase meals elsewhere and be reimbursed for them. It took troopers such as Saunders about an hour to make the round trip from their patrol areas to their stations and a half hour to eat. This system was unsatisfactory because almost all the troopers would return to their respective stations at about the same time leaving the State practically unpatrolled for one and a half hours during each meal period. Efforts were made by the authorities to prevent this result but these were unsuccessful for if the troopers did not arrive promptly at the stations the food would be served to them cold. Saunders and the other troopers were not required by the United States to include the value of these meals in their gross income for tax purposes.
On July 1, 1949 the providing of meals was discontinued and each trooper was given a monthly allowance of $70 in cash in lieu of meals. This allowance for food was paid in semi-monthly payments of $35, and these payments were included in the salary checks of Saunders and the other troopers. The sum of $70 a month was insufficient to pay for each trooper's meals, and the balance was made up from the trooper's own pocket. Federal income taxes were withheld from the food allowance, but the allowance was not regarded or accounted for as compensation either in the budget of the New Jersey State Police or by the New Jersey State Civil Service Commission. The budget of the State Police carried the meal allowances as a separate book item from the salaries account. Details governing the payment of the daily allowances for meals "* * * for actual days on duty, excluding vacation and days on monthly duty leave * * *" were set out in Operations Order No. 57 of the New Jersey State Police. Paragraph six of the Order provides: "Meals may be procured by each individual at a suitable place in the nearest vicinity of assigned patrols, stations or headquarters. Station, District and Region Commanders will control the time allotted for meals."
The record clearly demonstrates that the reason why the supplying of meals at the respective stations of the troopers was discontinued and the cash allowance made in lieu of meals was to give better police protection and coverage to New Jersey citizens by not having the roads left unpatrolled and state areas unprotected at any time. An additional reason for the change was that the new system was cheaper for the State of New Jersey.The State no longer had to maintain kitchens and kitchen crews. When the new system went into effect the eating hours of the troopers were staggered so that roads in rural areas were at no time completely unpatrolled and unprotected. The State Civil Service Commission was of the view that the new system was an improvement over the old.
The taxpayer, Saunders, and the Attorney General of New Jersey, who appears here amicus curiae, contend that the allowance was not nor was it ever intended to be a part of the troopers' compensation. They insist that the only difference between the old and new systems is that the cash was given directly to the troopers under the new system and prior to its institution the meals were furnished to them. They contend that the new system was inaugurated for the benefit and convenience of the State of New Jersey.
Two questions were presented to the United States Tax Court and both were decided adversely to the taxpayer. See 21 T.C. 630. The first was: Whether the cash payments which the taxpayer received from the State to defray the cost of meals purchased while on duty must be included in gross income under Section 22(a) of the Internal Revenue Code, 26 U.S.C. § 22(a) (1946 ed.)*fn1; and, second: If the payments must be included, whether the amounts expended by the taxpayer for meals, while on duty, were deductible as traveling expenses "while away from home in the pursuit of a trade or business" within the meaning of Section 23(a)(1)(A), or whether the amounts represent non-deductible personal or living expenses within the meaning of Section 24(a).
Saunders argues that the allowance paid him should not be included in his gross income as compensation because it is furnished for the convenience of his employer within the meaning of Section 29.22(a)-3 of Regulations 111, which provides in part: "If a person receives as compensation for services rendered a salary and in addition thereto living quarters or meals the value to such person of the quarters and meals so furnished constitutes income subject to tax. If, however, living quarters or meals are furnished to employees for the convenience of the employer, the value thereof need not be computed and added to the compensation otherwise received by the employees."
Although the convenience of the employer rule itself has an extensive history, the rule as presently applied is primarily based on this regulatory provision which by its terms refers only to living quarters and meals furnished in kind. Nevertheless, the rationale of the rule should make it applicable to determine the extent of gross income either when quarters and meals are furnished in kind or cash is paid in lieu thereof. Although there are situations where different tax consequences depend upon whether a receipt is in cash or in kind (i.e., § 112(b)(1) I.R.C., 26 U.S.C. (1952), exchanges of property of like kind), a determination of the amount of compensation of an employee is not one of those situations inasmuch as statutory Section 22(a) itself provides that "'[gross] income' includes * * * compensation * * * of whatever kind and in whatever form paid * * *." And regulatory Section 22(a)-3, quoted above, itself seems to be intended to insure that compensation in the form of meals and quarters is treated the same as a cash compensation. Admittedly, the payment of cash to an employee is normally compensatory and probably more obviously so than a payment in kind. Nevertheless, just as an employee is often furnished tangible property which cannot be regarded as compensation, an employee may be furnished cash which is not compensation. In the instant case, cash was furnished Saunders in advance for a particular purpose, viz., payment for meals, and it is an established fact that the entire amount furnished was so expended but it does not automatically follow that the cash received was compensation. In the past, the Bureau has recognized that cash received by an employee for similar purposes may not be compensation: in O.D. 11, 1 Cum.Bull. 66 (1919), it was held that an American Red Cross employee receiving maintenance but no pay should return as income only the excess of the amount received over his actual living expenses; and in O.D. 514, 2 Cum.Bull. 90 (1920), it was ruled that supper money furnished an employee working after regular hours and not considered as compensation was furnished for the convenience of the employer and was not taxable. Likewise, the courts have considered maintenance furnished in kind and in cash on the same basis for determining an individual's taxable compensation. In Jones v. United States, 1925, 60 Ct.Cl. 552, it was held that neither the value of living quarters furnished or cash in lieu of quarters paid an army officer were income; and citing the Jones case, it was stated in Bercaw v. Commissioner, 4 Cir. 1948, 165 F.2d 521, at page 524: "This conclusion [that payments by an army officer for meals and 'striker' service are not deductible for tax purposes] is inescapable when it is remembered that this officer has been paid commutation of quarters and a subsistence allowance, both of which allowances are not considered as income for the purposes of taxation."
Thus, because the result in this case should not be dependent on whether meals are furnished in cash or in kind, we may refer to the principle of the convenience of the employer rule in deciding the classification of this rations allowance just as we may when the meals themselves are furnished.
In making reference to the convenience of the employer rule, note the illuminating history of the rule which begins with the early years of the income tax. In 1919, the Bureau ruled that the board and lodging of seamen were furnished for the convenience of the employer and were therefore not includible in the gross income of the seamen. O.D. 265, 1 Cum.Bull. 71.In 1920, the existing income tax regulations were amended by T.D. 2992, 2 Cum.Bull. 76, to afford some recognition to the rule by inserting the following provision: "When living quarters such as camps are furnished to employees for the convenience of the employer, the ratable value need not be added to the cash compensation of the employee, but when a person receives as compensation for services rendered a salary and in addition thereto living quarters, the value to such person of the quarters furnished constitutes income subject to tax." Subsequently, in other ways the government recognized a broader applicability of the rule than that indicated by the regulation. See, e.g., O.D. 814, 4 Cum.Bull. 84 (1921) (Rule applied to exclude lodging and sustenance furnished fishing and canning employees). And in O.D. 915, 4 Cum.Bull. 85 (1921), the criterion for its application was expressed, in particular reference ...