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Adams v. United States | 218 Ct. Cl. 322, 585 F.2d 1060 (1978)
Generally, gross income includes all forms of compensation. Any economic benefit conferred upon a taxpayer, including fringe benefits and property, is considered compensation. But what if an employer provides a benefit for its own convenience? Is the value of that benefit includable in the taxpayer’s gross income? The United States Court of Claims sought to answer those questions in Adams versus United States.
Mobil Sekiyu Kabushiki Kaisha, a Tokyo-based subsidiary of Mobil Oil Corporation, built and owned a house about three miles from its headquarters. Sekiyu required its chief executive officer, or CEO, to reside in the home. The residence was specifically designed to conduct business and host social events outside regular business hours. In Japanese culture, social status directly correlates to perception and value in the business community.
Faneuil Adams was the CEO of Mobil Sekiyu and was therefore required to live in the house provided by Sekiyu. Adams and his wife hosted about 40 mixed business and social functions per year in their home.
On his U.S. federal income tax returns, Adams included in his gross income the fair rental value of the house. However, Adams based that value on the rental value of a comparable home in the United States. The rental rate in Tokyo was significantly higher.
The Internal Revenue Service audited Adams’s return and increased the amount includable in Adams’s gross income to the fair rental value of the house in Tokyo. The service assessed a tax deficiency.
Adams paid the deficiency and brought suit against the United States to recover the amount paid. The United States Court of Claims considered the case.
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