M. Caratan and Carola Caratan v. Commissioner of Internal Revenue

This is an appeal from a determination by the Tax Court that the fair market rental value of company-owned lodging furnished to the taxpayers without charge during the taxable years 1962, 1963 and 1964 was not excludable from taxpayers’ gross income under Section 119(2) of the Internal Revenue Code of 1954 ( 26 U.S.C. § 119 (2)). The Tax Court’s decision is reported at 52 T.C. 960 (1969).

The sole question on appeal is whether the Tax Court’s determination that the employee-taxpayers had failed to sustain their burden of proving that they were required to accept the lodging as a condition of their employment is clearly erroneous. We reverse.

The company, M. Caratan, Inc., is a California farming corporation which raises and sells grapes and other crops. The farm is composed of a number of non-contiguous tracts of land aggregating approximately 3,000 acres located near the town of Delano, California. During the taxable years in question, taxpayers owned 95% of the company’s stock. They also served as corporate officers and directors and were employed by the company as supervisory personnel over the day-to-day operations of the farm.

The company had a policy, established by the…