                     106 T.C. No. 19



                 UNITED STATES TAX COURT



     BOYD GAMING CORPORATION, f.k.a. THE BOYD GROUP
             AND SUBSIDIARIES, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent


CALIFORNIA HOTEL AND CASINO AND SUBSIDIARIES, Petitioners
     v. COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket Nos. 3433-95, 3434-95.              Filed May 22, 1996.



     Ps provided “free” meals to their employees in
private cafeterias located on their business premises.
R determined that sec. 274(n)(1), I.R.C., limits Ps’
deduction for the cost of these meals. R moves for
partial summary judgment in her favor. Ps object to
R’s motion, arguing that they may deduct 100 percent of
their cost under the de minimis fringe benefit
exception of sec. 274(n)(2)(B), I.R.C., and that the
applicability of this exception is a factual
determination that has yet to be made. Ps also move
for partial summary judgment in their favor, arguing
that they may deduct 100 percent of the meals’ cost
under the bona fide sale exception of sec. 274(e)(8),
I.R.C. Held: Ps may deduct 100 percent of the meals’
cost if they are within the de minimis fringe benefit
exception of sec. 274(n)(2)(B), I.R.C., and whether
they are within this exception is an unanswered
question of fact. Held, further: Ps’ provision of the
meals is not within sec. 274(e)(8), I.R.C.
                                - 2 -



     Thomas P. Marinis, Jr. and J. Barclay Collins III, for

petitioners.

     Paul L. Dixon, for respondent.



                               OPINION


     LARO, Judge:    These consolidated cases are before the Court

on cross-motions for partial summary judgment.1     Respondent moves

for partial summary judgment in her favor, arguing that section

274(n)(1) limits petitioners’ deductions for the cost of “free”

food and beverages that they provided to their employees on

petitioners’ business premises.2    Petitioners object to

respondent’s motion, arguing that a genuine issue of fact exists

as to the applicability of an exception to section 274(n)(1);

namely, whether the food and beverages are a de minimis fringe

benefit under section 274(n)(2)(B).      Petitioners also move for

partial summary judgment in their favor, arguing that section
274(n)(1) does not apply because petitioners "sold * * * [the

food and beverages to their employees] in a bona fide transaction

for an adequate [and full] consideration in money or money's

worth".3   See sec. 274(e)(8), (n)(2)(A).    Respondent replied to

     1
       On Nov. 7, 1995, the Court granted the unopposed motion of
respondent to consolidate the two cases for purposes of trial,
briefing, and opinion.
     2
         Respondent supports her motion with only the pleadings.
     3
         Petitioners’ cross-motion is supported by the affidavit of
                                                     (continued...)
                                - 3 -

petitioners’ notice of objection, and she objected to

petitioners’ cross-motion.4

     We hold that petitioners may deduct 100 percent of the cost

of the food and beverages provided to their employees, if the

food and beverages are within the de minimis fringe benefit

exception of section 274(n)(2)(B).      Whether petitioners are

within this exception is a factual determination that is yet to

be made.   We also hold that petitioners’ provision of the food

and beverages is not within section 274(e)(8).

     Unless otherwise stated, section references are to the

Internal Revenue Code in effect for the years in issue.      Rule

references are to the Tax Court Rules of Practice and Procedure.

We refer to Boyd Gaming Corp., f.k.a. the Boyd Group and

Subsidiaries, and California Hotel and Casino and Subsidiaries as

Boyd and CHC, respectively.

                              Background5

     Boyd and CHC are Nevada corporations whose principal offices

were in Las Vegas, Nevada, when they petitioned the Court.        For

its taxable year ended June 30, 1988 (the 1987 taxable year), CHC

was the common parent of an affiliated group of corporations that


(...continued)
one of their senior vice presidents.
     4
       Respondent’s objection is unaccompanied by supporting
affidavits.
     5
       The “facts” presented in this Opinion are stated solely
for purposes of deciding the motion and are not findings of fact
for this case. Fed. R. Civ. P. 52(a); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994).
                                - 4 -

filed a consolidated Federal income tax return.   CHC’s affiliated

group in its 1987 taxable year included:   (1) Mare-Bear, Inc.,

doing business as Stardust Hotel & Casino (Stardust) and

(2) Sam-Will, Inc., doing business as Fremont Hotel & Casino

(Fremont).   CHC sometimes did business as Sam’s Town Hotel

& Gambling Hall (Sam’s Town).

     For its taxable year ended June 30, 1989 (the 1988 taxable

year), Boyd was the common parent of an affiliated group of

corporations that filed a consolidated Federal income tax return.

Boyd's affiliated group in its 1988 taxable year included:     (1)

CHC, which sometimes did business as Sam’s Town, (2) Mare-Bear,

Inc., doing business as Stardust, and (3) Sam-Will, Inc., doing

business as Fremont.

     At all times relevant herein, CHC, Stardust, Fremont, and

Sam's Town (collectively referred to as the Properties) were

located in Las Vegas, Nevada.   Each of the Properties was a

resort complex that had casino, hotel, and restaurant facilities.

Some of the Properties had convention or amusement facilities.

Each of the Properties had an employee cafeteria that was located

on its premises.   The cafeterias (Cafeterias) were separate from

the public restaurants that were located on the Properties.    The

Cafeterias were used by petitioners to serve hot meals, cold

foods, and snacks (collectively referred to as the meals) to only

their employees.

     Petitioners provided the meals to all of their on-duty

employees, except for a small group of individuals who were
                                 - 5 -

allowed to eat in designated areas of the Properties’ public

restaurants, during the employees’ work shifts.       Petitioners

provided the meals without any out-of-pocket cost to the

employees.    Petitioners provided the meals for a variety of

operational reasons.    Petitioners’ provision of the meals was not

discriminatory in favor of highly compensated employees.

     Most, if not all, of the casinos in Las Vegas provided meals

to their employees during the relevant years.       In order to

attract and keep employees, petitioners offered packages of

compensation and benefits that were competitive in the

marketplace.    Meal benefits during an employee’s shift were

included in commonplace packages.6       In consideration for the meal

benefits, petitioners were able to require their employees to

stay on the Properties’ premises during their entire shift.

An employee who left the premises during his or her shift,

without authorization, was subject to disciplinary action up to

and including discharge.

     For the subject years, the Commissioner disallowed

20 percent of the deductions that petitioners reported for the

cost of their employees’ meals.    According to the notices of

deficiency, section 274(n) prohibits petitioners from deducting

20 percent of the meals’ cost.    In its petition, CHC alleges that

it did not deduct 20 percent of the meals’ cost for its 1987

taxable year, and that it was entitled to do so.

                             Discussion

     6
         Sometimes, meal benefits were required by union contracts.
                               - 6 -

     The issue at hand is one of first impression.     We must

decide whether petitioners can deduct the full cost of the meals

that they provided to their employees on their premises, or,

alternatively, whether section 274(n)(1) limits their deduction

to 80 percent of the meals’ cost.    Petitioners argue for the

former, stating that section 274(n)(1) does not limit their

deduction because their employee meals are:     (1) De minimis

fringe benefits under sections 132(e) and 274(n)(2)(B), or

(2) goods sold in a bona fide transaction for an adequate and

full consideration in money or money's worth under section

274(e)(8).   Respondent argues for the latter, stating that none

of the exceptions to section 274(n)(1) apply to the facts at hand

because petitioners provided the meals to their employees without

charge.

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials of phantom factual issues.

Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Shiosaki v.

Commissioner, 61 T.C. 861, 862 (1974).     The concept of summary

judgment is specifically recognized by this Court and is deeply

ingrained in our procedural rules.     Rule 121(a) provides that

either party may move for summary judgment in its favor upon any

or all parts of the legal issues in controversy.     When either

party makes such a motion, the opposing party must file "An

opposing written response, with or without supporting affidavits,

* * * within such period as the Court may direct."     Rule 121(b).

A decision on the merits of a taxpayer's claim will then be
                               - 7 -

rendered by way of summary judgment "if the pleadings, answers to

interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law."    Id.

     Because summary judgment decides an issue against a party

without the benefit of a trial, the Court grants such a remedy

cautiously and sparingly, and only after carefully ascertaining

that the moving party has met the requisite criteria.

Associated Press v. United States, 326 U.S. 1, 6 (1945);

Espinoza v. Commissioner, 78 T.C. 412, 416 (1982).     The Court

will not resolve disagreements over material factual issues in a

summary judgment proceeding.   Espinoza v. Commissioner, supra at

416; Matson Navigation Co. v. Commissioner, 67 T.C. 938, 951

(1977).   A fact is material if it "tends to resolve any of the

issues that have been properly raised by the parties."    10A

Wright et al., Federal Practice and Procedure:   Civil, sec. 2725,

at 93 (2d ed. 1983).   The moving party must prove that there is

no genuine issue of material fact, and factual inferences are

viewed in the light most favorable to the nonmoving party.

United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); Kroh v.
Commissioner, supra at 390; Preece v. Commissioner, 95 T.C. 594,

597 (1990).
                                     - 8 -

     We start our inquiry with the relevant text of section

274(n).7    Connecticut Natl. Bank v. Germain, 503 U.S. 249,

253-254 (1992); TVA v. Hill, 437 U.S. 153 (1978); United States

v. American Trucking Associations, 310 U.S. 534, 543-544 (1940).

Section 274(n) provides in part:

          (1) In general.--The amount allowable as a
     deduction under this chapter for--

                    (A) any expense for food or beverages, and

     *          *         *      *           *     *       *

     shall not exceed 80 percent [8] of the amount of such
     expense or item which would (but for this paragraph) be
     allowable as a deduction under this chapter.

          (2) Exceptions.--Paragraph (1) shall not apply to
     any expense if--

                  (A) such expense is described in
            paragraph * * * (8) * * * of subsection
            (e).[9]

                 (B) in the case of an expense for food
            or beverages, such expense is excludable from
            the gross income of the recipient under
            section 132 by reason of subsection (e)
            thereof (relating to de minimis fringes),

From this text, we find that the mandate of the Congress is

clear.     Petitioners may not deduct the full cost of their


     7
       Sec. 274(n) was added to the Code on Oct. 22, 1986, as
sec. 142(b) of the Tax Reform Act of 1986, Pub. L. 99-514,
100 Stat. 2085, 2118.
     8
       Sec. 13,209(a) of the Omnibus Budget Reconciliation Act of
1993, Pub. L. 103-66, 107 Stat. 312, 469, changed this amount to
50 percent for taxable years beginning after Dec. 31, 1993.
     9
       Sec. 274(e)(8) provides an exception for "Expenses for
goods or services * * * which are sold by the taxpayer in a bona
fide transaction for an adequate and full consideration in money
or money's worth.”
                               - 9 -

employees’ meals unless the meals are:   (1) De minimis fringe

benefits under section 132(e) or (2) sold by petitioners in a

bona fide transaction for an adequate and full consideration in

money or money's worth.

     Turning first to the de minimis fringe benefit exception,

we find that employee meals provided on a nondiscriminatory basis

are a de minimis fringe benefit under section 132(e) if:    (1) The

eating facility is owned or leased by the employer, (2) the

facility is operated by the employer, (3) the facility is located

on or near the business premises of the employer, (4) the meals

furnished at the facility are provided during, or immediately

before or after, the employee’s workday, and (5) the annual

revenue derived from the facility normally equals or exceeds the

direct operating costs of the facility (the revenue/operating

cost test).   Sec. 132(e)(2); sec. 1.132-7(a), Income Tax Regs.

     The parties do not dispute the applicability of this

five-prong test, and they do not dispute that the first four

prongs have been met.   The parties focus on the fifth prong;

i.e., the revenue/operating cost test.   For purposes of this

test, an employer may disregard the cost and revenue for any

employee meal that the employer reasonably determines is

excludable from gross income under section 119.   Sec.

1.132-7(a)(2), Income Tax Regs.10   Section 119(a)(1) allows an


     10
       The rule of sec. 1.132-7(a)(2), Income Tax Regs., that
disregards the cost and revenue of sec. 119 meals was originally
prescribed in sec. 1.132-7T(a)(2), Temporary Income Tax Regs.,
50 Fed. Reg. 52309 (Dec. 23, 1985).
                                - 10 -

employee to exclude from income the value of any meals furnished

by an employer for the employer’s convenience and on the

employer’s premises.     Commissioner v. Kowalski, 434 U.S. 77,

84 (1977).    Employee meals furnished without a charge on the

employer’s premises are considered to be within section 119 if

the employer furnished the meals for a “substantial

noncompensatory business reason”, the presence of which is a

factual determination.    Sec. 1.119-1(a)(2)(i), Income Tax Regs.

In making this determination, we are guided by section

1.119-1(a)(2)(ii), Income Tax Regs., which lists examples of

substantial noncompensatory business reasons.    We are also guided

by a directive in respondent’s regulations that all employee

meals are considered furnished for a substantial noncompensatory

business reason if the employer:    (1) Furnished the meals at its

place of business and (2) had a substantial noncompensatory

business reason for furnishing the meals to each of substantially

all of the employees who were furnished the meals.    Sec.

1.119-1(a)(ii)(e), Income Tax Regs.

       Respondent argues that petitioners cannot meet the

revenue/operating cost test because they earned no revenue on the

employee meals.    Respondent claims that section 1.132-7(a)(2),

Income Tax Regs., applies only when employees pay for their

meals, some of which are excludable from gross income under

section 132(e) and the rest of which are excludable under section

119.    Respondent claims that the Congress intended to allow a

full deduction for employee meals only when the meals were
                               - 11 -

provided in a facility that normally makes an overall profit, and

that the Congress did not intend for section 274(n)(2)(B) to

apply to meals covered by section 119.    Respondent relies

primarily on two excerpts from the committee reports to section

274(n)(1).    The first excerpt states that “20 percent of an

otherwise allowable deduction for food and beverages * * * is

disallowed.    Similarly, the cost of a meal furnished by an

employer to employees on the employer’s premises is subject to

the rule.”    S. Rept. 99-313, at 70 (1985), 1986-3 C.B. (Vol. 3)

1, 70; H. Rept. 99-426, at 123 (1985), 1986-3 C.B. (Vol. 2) 1,

123.    The second excerpt states that “The bill generally reduces

to 80 percent the amount of any deduction otherwise allowable for

meal expenses, including meals * * * furnished on an employer’s

premises to its employees (whether or not such meals are

excludable from the employee’s gross income under sec. 119).”

H. Conf. Rept. 99-841, at II-24 to II-25 (1986), 1986-3 C.B.

(Vol. 4) 1, 24-25.    Respondent also relies on the fact that

section 274(e)(1) refers to food and beverages furnished on an

employer’s business premises primarily for its employees.

Respondent argues that section 274(n)(2) would have referred to

section 274(e)(1), had the Congress intended to except employee

meals from the limitation of section 274(n)(1).

       We disagree with respondent’s broad reading of section

274(n)(1).    In support of her reading, respondent refers us to

two excerpts of legislative history.    Respondent takes both

excerpts out of their context.    The first excerpt is listed under
                                - 12 -

the caption “in general”.     Immediately thereafter, under the

caption “Exceptions to percentage reduction rule”, the reports

state that “The bill provides certain exceptions to the

applicability of the percentage reduction rule.     First, the cost

of a meal * * * is fully deductible if the full value * * * is

excludable under section 132, pursuant to either the subsidized

eating facility exclusion or the exclusion for de minimis fringe

benefits.”    S. Rept. 99-313, supra at 71, 1986-3 C.B. (Vol. 3)

at 71; H. Rept. 99-426, supra at 124, 1986-3 C.B. (Vol. 2) at

124.    The same is true with respect to the second excerpt.

Reading on from the language to which respondent has referred us,

we find that the report goes on to discuss the same two

exceptions that respondent would have us ignore today.     H. Conf.

Rept. 99-841, supra at II-25, 1986-3 C.B. (Vol. 4) at 25.

       Based on our reading of all the legislative history, we find

that the excerpts on which respondent relies do not stand for the

broad proposition that she espouses.     The excerpts are merely

broad rules that are limited by language that follows immediately

thereafter.    Unlike respondent, we do not read the legislative

history to foreclose the complete deduction of employee meals in

100 percent of the cases.11    Petitioners’ deduction for their

employee meals would not be limited by section 274(n)(1), for

example, if section 119 allows all of petitioners’ employees to

exclude the value of the meals from their gross income.     In such

       11
       We also place less weight than respondent on the fact
that the Congress did not include sec. 274(e)(1) in its list of
exceptions under sec. 274(n)(2).
                               - 13 -

a case, the de minimis fringe benefit exception of sections

132(e) and 274(n)(2)(B) will allow petitioners to claim a

complete deduction for the meals because the Cafeterias’ revenues

and expenses will both be zero for purposes of the

revenue/operating cost test.

     Respondent is mistaken when she boldly asserts that the

Congress did not want section 119 to apply to determinations

under section 274(n)(2)(B).    The incorporation of section 119

into the de minimis fringe benefit exception of section 132(e)

first appeared in section 1.132-7T(a)(2), Temporary Income Tax

Regs., 50 Fed. Reg. 52309 (Dec. 23, 1985), which was published

before section 274(n)(2)(B) came into law.    According to a

longstanding, well-established “benign fiction” of statutory

construction, we assume that the Congress knew of this

incorporation when it promulgated section 274(n)(2)(B).     Green v.

Bock Laundry Mach. Co., 490 U.S. 504, 528 (1989) (Scalia, J.,

concurring in judgment); see Lindahl v. OPM, 470 U.S. 768, 783

n.15 (1985); Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Curran, 456 U.S. 353, 382 n.66 (1982); Lorillard v. Pons, 434

U.S. 575, 580-581 (1978); Sohappy v. Hodel, 911 F.2d 1312,
1317 (9th Cir. 1990); Kovacs v. Commissioner, 100 T.C. 124,

129-130, 133 (1993), affd. 25 F.3d 1048 (6th Cir. 1994).    With

regard to the statement in the conference report that deductions

for meal expenses are reduced to 80 percent “whether or not such

meals are excludable from the employee’s gross income under sec.

119”, H. Conf. Rept. 99-841, supra at II-24 to II-25, 1986-3 C.B.
                              - 14 -

(Vol. 4) at 24-25, we do not find this statement to be

disharmonious with our reading of the statutory text.    Although

we need not and do not pass on the breadth of this statement, one

reasonable interpretation is that the entire cost of a

section 119 meal is not deductible when the meal is outside of

the de minimis fringe benefit exception of section 132(e).

     We find further support for our reading in the reason for

section 274(n)(1).   The Congress included section 274(n)(1) in

the Tax Reform Act of 1986, Pub. L. 99-514, sec. 142(b),

100 Stat. 2085, 2118, primarily to address their concern that the

then-present law unfairly allowed high-income taxpayers to

structure their business affairs in a way that generated

deductions for personal expenses such as meals.   As stated by the

committees, with respect to the need for a change in the

then-present law,

          Since the 1960's, the Congress has sought to
     address various aspects of deductions for meals,
     entertainment, and travel expenses that the Congress
     and the public have viewed as unfairly benefiting those
     taxpayers who were able to take advantage of the tax
     benefit of deductibility. In his 1961 Tax Message,
     President Kennedy reported that “too many firms and
     individuals have devised means of deducting too many
     personal living expenses as business expenses, thereby
     charging a large part of their cost to the Federal
     Government.” He stated: “This is a matter of national
     concern, affecting not only our public revenues, our
     sense of fairness, and our respect for the tax system,
     but our moral and business practices as well.”

          The committee shares these concerns, and believes
     that these concerns are not addressed adequately by
     present law. * * *

          The committee believes that present law, by not
     focusing sufficiently on the personal-consumption
     element of deductible meal and entertainment expenses,
                              - 15 -

     unfairly permits taxpayers who can arrange business
     settings for personal consumption to receive, in
     effect, a Federal tax subsidy for such consumption that
     is not available to other taxpayers. The taxpayers who
     benefit from deductibility under present law tend to
     have relatively high incomes, and in some cases the
     consumption may bear only a loose relationship to
     business necessity. For example, when executives have
     dinner at an expensive restaurant following business
     discussions and then deduct the cost of the meal, the
     fact that there may be some bona fide business
     connection does not alter the imbalance between the
     treatment of those persons, who have effectively
     transferred a portion of the cost of their meal to the
     Federal Government, and other individuals, who cannot
     deduct the cost of their meals.

          The significance of this imbalance is heightened
     by the fact that business travel and entertainment
     often may be more lavish than comparable activities in
     a nonbusiness setting. For example, meals at expensive
     restaurants and season tickets for luxury boxes at
     sporting events are purchased to a significant degree
     by taxpayers who claim business deductions for these
     expenses. This disparity is highly visible, and
     contributes to public perceptions that the tax system
     is unfair. Polls indicate that the public identifies
     the deductibility of normal personal expenses such as
     meals to be one of the most significant elements of
     disrespect for and dissatisfaction with the present tax
     system.

          In light of these considerations, the committee
     bill reduces by 20 percent the amount of otherwise
     allowable deductions for business meals and
     entertainment. This reduction rule reflects the fact
     that meals and entertainment inherently involve an
     element of personal living expenses * * *. [H. Rept.
     99-426, supra at 120-121, 1986-3 C.B. (Vol. 2) at
     120-121.]

See also S. Rept. 99-313, supra at 67-68, 1986-3 C.B. (Vol. 3)

at 67-68.

     Respondent’s proffered interpretation of section 274(n)(1)

stands in marked contrast to the abusive situations that spawned

that section.   In contrast with the abuses that the Congress

meant to address in enacting section 274(n)(1), we see no abuse
                              - 16 -

that would be curtailed by denying petitioners a full deduction

for the cost of their employee meals.    Indeed, petitioners’

provision of employee meals is a far stride from the abuses that

the Congress chose to address in their promulgation of section

274(n)(1).   We recognize that the Congress enacted that section

out of their concern for taxpayers’ deducting expenses, such as

meals, that were inherently personal.    All the same, we do not

read section 274(n)(1) to disallow a full deduction for the cost

of “free” employee meals 100 percent of the time.

     In short, section 274(n)(2) will allow petitioners to deduct

the entire cost of their employee meals if the meals are a de

minimis fringe benefit under section 132(e).    Thus, petitioners

may deduct the meals’ full cost if they reasonably determine that

the meals are excludable from their employees’ incomes under

section 119.   Sec. 1.132-7(a)(2), Income Tax Regs.12   To the

extent that respondent believes that the de minimis fringe

benefit exception is inapplicable because the meals were

furnished free of charge, we disagree.   Neither the text of

section 274 nor its legislative history persuades us that the

de minimis fringe benefit exception applies only to cafeterias

     12
       We recognize that our incorporation of sec. 119 into the
de minimis fringe benefit exception of sec. 274(n)(2)(B) rests
solely on sec. 1.132-7(a)(2), Income Tax Regs. Respondent
acknowledges that these regulations literally apply to sec.
274(n)(2)(B), but argues that she did not intend for this literal
application. Respondent asks the Court to adopt a rule that
would limit these regulations to determinations under sec. 132.
We refuse to do so. To the extent that respondent wants to limit
the plain meaning of the words inscribed in an income tax
regulation, she (and not the Court) must prescribe the
limitation.
                               - 17 -

that charge a fee for their meals.      Accordingly, we will deny

respondent’s motion for partial summary judgment in her favor,

and we will set this case for trial to determine whether

petitioners qualify for the de minimis fringe benefit exception

to section 274(n)(1).    In denying respondent’s motion, we have

considered all arguments made by her and, to the extent not

discussed above, have found them to be without merit.

     Turning to petitioners’ argument in support of judgment in

their favor, section 274(e)(8) provides an exception for

"Expenses for goods or services * * * which are sold by the

taxpayer in a bona fide transaction for an adequate and full

consideration in money or money's worth.”      Petitioners argue that

the meals fall within this statutory language.      Petitioners argue

that they sell the meals to their employees in consideration for

the employees’ services and the employees’ promises not to leave

petitioners’ business premises during breaks.

     We are not persuaded by petitioners’ arguments on section

274(e)(8).    Put simply, we do not believe that petitioners sold

the meals to their employees in a bona fide transaction for

adequate and full consideration.    We believe that petitioners

merely presented the meals to their employees in connection with

the employees’ employment with petitioners.      To say the least, we

are sure that petitioners’ employees would be surprised to hear

that they were paying arm’s-length, fair market value prices for

the meals.    Yet, this is the holding that petitioners would have

us reach.    Such a holding is unsupported by the record and is
                                - 18 -

contrary to common sense.13    Indeed, bearing in mind that

petitioners’ Federal income tax returns report no sale revenues

for their alleged sales of meals to their employees, petitioners’

reporting of these meals supports our conclusion.    We also note

that petitioners’ memorandum of law states that petitioners

provide these meals to their employees at “no charge”.

     We hold that petitioners’ provision of the meals is not

within section 274(e)(8).     In so holding, we have considered all

arguments made by petitioners for a contrary holding and, to the

extent not discussed above, have found them to be without merit.

     To reflect the foregoing,



                                           An appropriate order

                                      denying both motions for

                                      partial summary judgment will

                                      be issued.




     13
       As we understand petitioners’ argument, they sold the
meals to their employees at cost. Whereas a willing buyer would
be delighted to purchase a meal at cost, very few (if any)
willing sellers would be able to stay in business if they
continued to sell the meals at cost.
