                           148 T.C. No. 24


                  UNITED STATES TAX COURT



JEREMY M. JACOBS AND MARGARET J. JACOBS, Petitioners v.
   COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 19009-15.                         Filed June 26, 2017.



       Ps own the Boston Bruins (Bruins), a National Hockey League
franchise based in Boston, Massachusetts. During the taxable periods
in issue the Bruins played approximately one-half of their hockey
games at their home arena in Boston and approximately one-half of
their hockey games at away city arenas throughout the United States
and Canada. The Bruins stayed at hotels when visiting away cities
and contracted with the hotels for the provision of pregame meals to
players and team personnel. Ps deducted the full cost of pregame
meals furnished to Bruins’ players and personnel. R issued to Ps a
notice of deficiency, determining that the cost of pregame meals was
subject to the 50% limitation of I.R.C. sec. 274(n)(1).

       Held: Ps’ provision of pregame meals to Bruins’ players and
personnel at away city hotels qualifies as a de minimis fringe under
I.R.C. sec. 274(n)(2)(B), and therefore the cost of such meals is not
subject to the 50% limitation of I.R.C. sec. 274(n)(1).
                                        -2-

      Sean M. Akins, Jeremy D. Spector, and Lauren A. Ross, for petitioners.

      Leon St. Laurent and Randall S. Trebat, Jr., for respondent.



      RUWE, Judge: Respondent determined deficiencies of $45,205 and

$39,823 in petitioners’ Federal income tax for the taxable years 2009 and 2010,

respectively. The sole issue for decision is whether Deeridge Farms Hockey

Association (Deeridge), a subchapter S corporation owned directly or indirectly by

petitioners, is entitled to deductions for the full amounts of expenses incurred in

providing meals to professional hockey players and team personnel at hotels in

cities other than Boston, Massachusetts, or whether the deduction for meal

expenses is limited to 50% under section 274(n)(2).1

      Unless otherwise indicated, all section references are to the Internal

Revenue Code (Code) in effect for the years in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure.




      1
        On December 16, 2016, respondent filed with the Court a motion to strike
requesting that exhibit 1 attached to petitioners’ reply brief along with certain
portions of the reply brief be stricken. On January 19, 2017, pursuant to an order
of the Court, petitioners filed a response objecting to respondent’s motion to
strike. We will issue a separate order denying respondent’s motion to strike.
                                         -3-

                              FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. The first, second,

and first amended second stipulations of fact and the attached exhibits are

incorporated herein by this reference.

      At the time the petition was filed, petitioners resided in New York.

Petitioners are the owners of the Boston Bruins (Bruins or team), a National

Hockey League (NHL) franchise based in Boston, Massachusetts. Petitioners own

the Bruins through three entities: Deeridge, Manor House Hockey Association,

LLC (Manor House), and the Boston Professional Hockey Association, Inc.

(BPHA). Deeridge was incorporated on July 10, 2001, and has been a subchapter

S corporation since its election on January 1, 2002. During the taxable years in

issue petitioner Jeremy M. Jacobs owned 99% of Deeridge and petitioner Margaret

J. Jacobs owned 100% of Manor House, which in turn owned 1% of Deeridge.

Deeridge wholly owned BPHA, which is a Massachusetts corporation. On

January 1, 2002, Deeridge elected to treat BPHA as a qualified subchapter S

corporation. BPHA owns and operates the Bruins.

The NHL and the Bruins

      The NHL is a professional ice hockey league formed in 1917. During the

years in issue the NHL consisted of 30 hockey teams based throughout the United
                                        -4-

States and Canada. The NHL is divided into two conferences: the Eastern

Conference and the Western Conference. The Eastern Conference is subdivided

into three divisions (the Atlantic, the Northeast, and the Southeast), and the

Western Conference is subdivided into three divisions (the Pacific, the Central,

and the Northwest). During the years in issue the Bruins were members of the

Eastern Conference’s Northeast Division. The Bruins are one of the oldest and

most successful teams in the NHL. Since 1924, when the Bruins first joined the

NHL, they have won the Stanley Cup (i.e., the NHL’s championship) on six

separate occasions. As part of their business model, the Bruins’ goal is to win as

many hockey games as possible.

NHL Scheduling

      An NHL season typically begins in September and concludes in June of the

following year. NHL seasons consist of preseason games, regular season games,

and postseason games. Preseason games are played in September and early

October, regular season games are played in October through mid-April, and

postseason games are played from mid-April through June. Each NHL team plays

a total of 82 regular season games per season: 41 games at its hometown arena2

      2
       The Bruins’ home arena for the taxable years in issue was the TD Garden
in Boston, Massachusetts, and their practice and training facility was the Ristuccia
                                                                       (continued...)
                                        -5-

(home games) and 41 games at arenas in different cities (away games). The NHL

Commissioner’s office establishes the schedule for each season in consultation

with NHL teams. The NHL constitution and bylaws obligate NHL teams to play

regular season home and away games. Eight NHL teams from each conference

qualify for the postseason on the basis of their regular season performance, and the

NHL constitution and bylaws obligate each playoff team to play both home and

away games during the postseason.

      The NHL requires teams to arrive in the away city at least six hours before

the start of an away game.3 The collective bargaining agreement (CBA)--which

binds the NHL, member teams, and players of member teams--requires that an

NHL team travel to an away city the day before game day if the flight to the away

city is greater than 150 minutes. If an NHL team fails to participate in a scheduled

away game it must forfeit the game, lose playoff points, incur financial penalties




      2
     (...continued)
Memorial Arena in Wilmington, Massachusetts.
      3
       The Bruins usually travel to away city preseason games on the day of the
game because the NHL does not require earlier arrival and preseason games have
no playoff implications.
                                         -6-

from the NHL, and indemnify the home team for loss of revenue and other

expenses.4

Bruins’ Traveling Arrangements

      During the years in issue the Bruins traveled to away games with various

personnel, which typically included: between 20 and 24 players, the head coach,

assistant coaches, medical personnel, athletic trainers, equipment managers,

communications personnel, travel logistics managers, public relations/media

personnel, and other employees (traveling hockey employees). During the years in

issue the Bruins’ traveling hockey employees traveled to every away game.

      The Bruins begin to identify and contract with prospective away city hotels

soon after the NHL releases the game schedule, which is typically months before

the season starts. The contracts between the Bruins and away city hotels provide

for sleeping accommodations and banquet or conference rooms (meal rooms)

where pregame meals and snacks are served. The Bruins select the away city

hotels on the basis of the location, level of service provided by the hotel, and




      4
       Pursuant to the NHL constitution, the Bruins receive 100% of revenues
from regular season ticket sales for home games and no revenues from regular
season ticket sales for away games. The Bruins’ away games are telecast on the
New England Sports Network, and BPHA earns a rights fee for the telecast.
                                        -7-

quality of food served for the pregame meals.5 If the hotel sufficiently meets the

Bruins’ needs, the team will typically return to the same establishment for future

games in the same season or in subsequent seasons.

      Each away city hotel prepares pregame meals (i.e., breakfast, lunch, or

brunch) and snacks that meet the players’ specific nutritional guidelines to ensure

optimal performance for the upcoming game and throughout the remainder of the

season. The Bruins contract in advance with each away city hotel for the

provision of pregame meals and snacks, and the food is made available to all

traveling hockey employees. The Bruins initiate the meal contracting process by

providing a custom meal menu to the prospective away city hotel requesting

specific types and quantities of food. The Bruins tend to keep food options

consistent at each away city hotel to avoid players’ having gastric problems during

the game. The Bruins always order the same quantity of food to feed all traveling

hockey employees. Using this custom meal menu the hotel prepares and sends to

      5
        The Bruins typically request certain concessions from the away city hotels,
including: (1) a table with keys for prekeyed rooms for expedited check-in; (2)
late checkout corresponding to the game time; (3) no game day housekeeping, to
prevent disturbing player rest; (4) a complimentary suite for the head coach; (5)
suite upgrades for the GM, president, athletic trainers, and onsite travel
coordinator; and (6) no fee for the meal room. When the Bruins are visiting cities
that are home to other Eastern Conference teams, the hotel contracts usually will
include a provision guaranteeing room availability should the Bruins qualify for
the postseason.
                                        -8-

the Bruins a banquet event order (BEO) which sets forth the date, time, meal

room, number of guests, menu, and pricing for each pregame meal. The BEOs

typically list fewer anticipated meal attendees than the actual number of meal

attendees for cost reduction reasons. If the BEO deviates from the custom meal

menu, the Bruins contact the hotel to have the discrepancy corrected. Once the

BEO meets the Bruins’ needs, the team accepts the offer set forth in the BEO by

executing the document and returning it to the hotel for a countersignature.

      The meal room is provided to the Bruins at no extra cost, and the meal

rooms are set up similarly at each hotel--usually round tables with chairs and

buffet stations where food and beverages are available for self-service. For

privacy reasons, the Bruins request that the location of the meal room not be

disclosed to the public, and the meal room is accessible only to traveling hockey

employees, waiters, waitresses, and dining captains.

The Day Before an Away Game

      On the day before an away game the Bruins’ traveling hockey employees

take a charter flight to the away city and check in to the away city hotel. Bruins

players have an 11 p.m. curfew on the night before a game. Depending on how

early the team arrives on the day before an away game, the players will use the
                                         -9-

time before curfew to eat a meal, rest, receive treatments from the training staff, or

complete strength and conditioning workouts.

Game Day Morning

      On the morning of an evening6 away game the Bruins players have a

mandatory breakfast between 8 and 10 a.m. The pregame breakfast takes place in

the meal room assigned to the team by the hotel pursuant to the terms of the

contract entered into by the Bruins and the hotel. The traveling hockey employees

are provided an itinerary for each away game which details the time and location

of meals. Breakfast is made available to all traveling hockey employees, and

attendance is mandatory for all players. Players may be fined or scratched from

participating in games if they are late to or absent from breakfast.

      Aside from nutrition, breakfast also provides the Bruins with a chance to

conduct team business. Bruins players will meet with coaches during breakfast--

either one-on-one or in small groups--to discuss strategy and review game film.

The public relations staff also attends breakfast, where they meet with players

concerning anticipated media inquiries, interviews, or other public-facing issues.

Bruins players also meet with staff at breakfast to receive game tickets for family

      6
      As discussed more fully infra p. 11, the Bruins will occasionally play away
games in the afternoon rather than in the evening. On these occasions the meal
schedule will differ.
                                        - 10 -

and friends. Coaches, trainers, and management also use breakfast to meet

amongst themselves and make roster adjustments because of illness, injury,

strategy, or performance issues. Following breakfast the Bruins typically board a

charter bus and travel to the opponent’s arena or practice facility to practice for the

upcoming game. On occasion, if the head coach determines that players are

fatigued and in need of extra rest, the team will skip its postbreakfast practice and

instead conduct meetings at the hotel to review game film and discuss strategy.

Game Day Afternoon

      When the Bruins return from the postbreakfast practice they have lunch

between 12:15 and 2:15 p.m. local time, which, like breakfast, is made available to

all traveling hockey employees. Lunch is identified in the Bruins’ travel itinerary

and is held in the designated meal room, and attendance is mandatory for all

players. At lunch the Bruins’ coaches may conduct small group and/or one-on-one

meetings with players, and the public relations staff may meet with players to

discuss anticipated media inquiries, interviews, and public-facing issues.

      After lunch Bruins’ players are afforded free time, which is usually used to

rest before the game. The Bruins are also provided an afternoon snack, which

generally is between 3:15 and 5:15 p.m. local time, before evening away games.

Like breakfast and lunch, the pregame snack is identified in the travel itinerary and
                                         - 11 -

takes place in the designated meal room. However, unlike breakfast and lunch, it

is not mandatory for Bruins’ players to attend or eat the pregame snack.

Afternoon Game Schedule

      On certain occasions the Bruins will play away games in the afternoon

rather than the evening, and the abovementioned schedule will be altered. In these

instances a pregame brunch replaces both the breakfast and lunch held in advance

of evening games. The pregame brunch takes place between 8 a.m. and 12:30

p.m., depending on the time of the afternoon game. As with breakfast and lunch

preceding away evening games, the pregame brunch before away afternoon games

is made available to all traveling hockey employees, is mandatory for Bruins’

players, is identified in the travel itinerary, and involves meetings, strategy

sessions, film review, and other game preparation and media-related activities.

Other Hotel Activities

      In addition to lodging, meals, and meetings, the Bruins use away hotels for

other team-related activities. For instance, the team’s athletic trainers use hotel

space to provide players with medical treatment, physical therapy, massages, and

strength and conditioning training. It is important that each Bruins player receive

proper medical treatment and strength and conditioning training to decrease the

likelihood of injury and maximize athletic performance. The treatments and
                                        - 12 -

strength and conditioning training are provided to the players in different areas of

the away city hotel, including suites, player rooms, the fitness center, and the pool

and hot tubs.

Game and Postgame Activities

      After the pregame snack (or brunch in the case of an afternoon away game)

and two hours and 25 minutes before game time the Bruins’ traveling hockey

employees board a charter bus and depart for the opponent’s arena. Upon arrival

at the opponent’s arena the players stretch and dress in their uniforms for the

game. An NHL game consists of 60 minutes of playing time and lasts

approximately 150 minutes from start to finish. After the conclusion of the game

the Bruins will typically remain at the opponent’s arena for approximately one

hour to shower, change clothes, and meet with the media. The Bruins’ traveling

hockey employees then board a charter bus and travel to the airport to fly back to

Boston or to the next away city.

Tax Returns

      Petitioners timely filed their Federal income tax returns for the taxable years

2009 and 2010. Deeridge electronically filed Forms 1120S, U.S. Income Tax

Return for an S Corporation, for the taxable years 2009 and 2010, claiming meal
                                       - 13 -

expense deductions of $255,754 and $284,446, respectively, for pregame meals

provided to the Bruins’ traveling employees while at away city hotels.

      Respondent issued a notice of deficiency dated April 28, 2015, determining

deficiencies of $45,205 and $39,823 in petitioners’ Federal income tax for the

taxable years 2009 and 2010, respectively. The deficiencies result from

respondent’s disallowance of 50% of Deeridge’s claimed deductions for meal

expenses provided to the Bruins’ traveling hockey employees in cities other than

Boston.7 Petitioners timely filed a petition with this Court disputing respondent’s

determination.

                                     OPINION

      The issue for decision is whether petitioners, through BPHA and Deeridge,

are entitled to deduct the full cost of pregame meals provided to the Bruins’

traveling hockey employees while at away city hotels, or, alternatively, whether

section 274(n)(1) limits this deduction to 50% of the expenses for such meals.

Petitioners argue that section 274(n) does not limit deductions for the cost of

pregame meals provided at away city hotels because the meals qualify as: (1) a de

minimis fringe under section 274(n)(2)(B), and, alternatively, (2) an expense for

      7
       Respondent’s adjustments in the notice of deficiency do not disallow
claimed meal expense deductions associated with meals provided to the Bruins’
players and staff at the TD Garden in Boston, Massachusetts.
                                       - 14 -

entertainment sold to customers under section 274(n)(2)(A). Respondent argues

that none of the exceptions to section 274(n) applies to the Bruins’ provision of

pregame meals and therefore the 50% limitation applies.

      The Commissioner’s determinations in the notice of deficiency are generally

presumed correct, and the taxpayers bear the burden of proving that the

determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Deductions are a matter of legislative grace, and the taxpayers bear the

burden of proving that they are entitled to the claimed deductions. INDOPCO,

Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice, Co. v.

Helvering, 292 U.S. 435, 440 (1934).

      Section 162(a) allows as a deduction all the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade or

business. Section 274(a)(1)(A) disallows a deduction for certain meal and

entertainment expenses otherwise deductible under section 162 unless the

expenses are associated with the active conduct of the taxpayer’s trade or business.

Respondent does not challenge that the Bruins’ pregame meal expenses are

associated with the active conduct of petitioners’ trade or business.

      If the deduction for meal expenses is not disallowed by section

274(a)(1)(A), then section 274(n) imposes a 50% limitation on the deduction for
                                       - 15 -

meal expenses unless an exception applies. Section 274(n) provides, in pertinent

part:

             SEC. 274(n). Only 50 Percent of Meal and Entertainment
        Expenses Allowed as Deduction.--

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

                          (A) any expense for food or beverages, and

                          (B) any item with respect to an activity which is of
                   a type generally considered to constitute entertainment,
                   amusement, or recreation, or with respect to a facility
                   used in connection with such activity,

             shall not exceed 50 percent 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 (2),
                   (3), (4), (7), (8), or (9) of subsection (e).

                         (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),

Petitioners argue that the Bruins’ provision of pregame meals to traveling hockey

employees at away city hotels qualifies for the de minimis fringe exception under

section 274(n)(2)(B), or, alternatively, as expenses for entertainment sold to
                                         - 16 -

customers under section 274(n)(2)(A).8 We first address petitioners’ argument

that pregame meals meet the de minimis fringe exception.

I. De Minimis Fringe Exception

      Petitioners are entitled to deduct the full cost of pregame meals provided to

the Bruins’ traveling hockey employees if the meals meet the de minimis fringe

exception. See secs. 274(n)(2)(B), 132(e).9

      As a preliminary matter, section 132(e)(2) requires that “access to the

[eating] facility is available on substantially the same terms to each member of a

group of employees which is defined under a reasonable classification set up by

the employer which does not discriminate in favor of highly compensated

employees.” For the years in issue a highly compensated employee was one who

received compensation exceeding $110,000. See sec. 132(j)(6); Notice 2009-94,

2009-50 I.R.B. 848, 848; Notice 2008-102, 2008-2 C.B. (Vol. 2) 1106, 1106. The

Bruins provided pregame meals to all traveling hockey employees, and we find


      8
          Sec. 274(n)(2)(A) cross-references sec. 274(e)(8), which provides:

            (8) Entertainment sold to customers.--Expenses for goods or
      services (including the use of facilities) which are sold by the
      taxpayer in a bona fide transaction for an adequate and full
      consideration in money or money’s worth.
      9
       Sec. 132(l) does not affect this case because it specifically has no
application to sec. 132(e).
                                        - 17 -

this classification (i.e., Bruins employees traveling to away cities to perform

business duties) to be a reasonable classification given the nature of the team’s

business. Petitioners provided credible testimony that the pregame meals were

made available to all Bruins’ traveling hockey employees--highly compensated,

nonhighly compensated, players, and nonplayers--on substantially the same terms.

Petitioners also provided testimony, which we find credible, that any discrepancy

between anticipated and actual meal attendees was a function of cost reduction

concerns and not discrimination. We therefore hold that the Bruins’ provision of

pregame meals to traveling hockey employees satisfies the nondiscriminatory

manner requirement of section 132(e)(2).

      Employee meals provided in a nondiscriminatory manner constitute a de

minimis fringe 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); Boyd Gaming Corp. v. Commissioner, 106 T.C. 343, 348 (1996);

sec. 1.132-7(a), Income Tax Regs. We will address each requirement in turn.
                                         - 18 -

      A. Eating Facility Is Owned or Leased by Employer

      For employee meals at an employer-operated eating facility to qualify as a

de minimis fringe under sections 274(n)(2)(B) and 132(e), the regulations require

that the employer-operated eating facility be “owned or leased by the employer”.10

Sec. 1.132-7(a)(2)(i), Income Tax Regs. The regulations do not define the word

“lease”. “It is a ‘fundamental canon of statutory construction’ that, ‘unless

otherwise defined, words will be interpreted as taking their ordinary,

contemporary, common meaning.’” Sandifer v. U.S. Steel Corp., 571 U.S. ___,

___, 134 S. Ct. 870, 876 (2014) (quoting Perrin v. United States, 444 U.S. 37, 42

(1979)); Payless Cashways, Inc. v. Commissioner, 114 T.C. 72, 77-78 (2000). A

lease is commonly defined as “[a] contract by which a rightful possessor of real

property conveys the right to use and occupy the property in exchange for

consideration”. Black’s Law Dictionary 970 (9th ed. 2009).

      Although the BEOs and hotel contracts entered into between the Bruins and

the away city hotels are not specifically identified as “leases”, the substance of

these contracts indicates that the Bruins are paying consideration in exchange for

“the right to use and occupy” the hotel meal rooms. The Bruins’ execute BEOs

and hotel contracts with each away city hotel to occupy meal rooms and determine

      10
           Petitioners do not contend that they own the away city hotel meal rooms.
                                        - 19 -

what types of food are served, and the BEOs specify the dates and times of the

meals and the anticipated number of attendees. The Bruins do not provide

separate consideration for the rental of the meal rooms; however, the meal rooms

are essential to the Bruins’ away city business operations, and the hotels agree to

provide the meal rooms free of charge because the Bruins spend money for

lodging and food. The Bruins dictate several aspects regarding the setup of the

meal rooms, such as the furnishings and the presence of audiovisual equipment or

a whiteboard. The Bruins also require the hotel to keep the location of the meal

room private from the general public by refraining from posting any identifying

information about the Bruins’ use of the room. The evidence establishes that the

Bruins contract with away city hotels for the right to “use and occupy” meal rooms

to conduct team business, and therefore these agreements are substantively leases.

      B. Operated by the Employer

      For employee meals at an employer-operated eating facility to satisfy the de

minimis fringe exception under section 132, the eating facility must be operated by

the employer. See sec. 1.132-7(a)(2)(ii), Income Tax Regs. Section 1.132-7(a)(3),

Income Tax Regs., provides the following guidance:

            (3) Operation by the employer.--If an employer contracts with
      another to operate an eating facility for its employees, the facility is
      considered to be operated by the employer for purposes of this
                                       - 20 -

      section. If an eating facility is operated by more than one employer, it
      is considered to be operated by each employer.

      The Bruins contract with each away city hotel regarding the operation of the

meal rooms as well as food preparation and service. Several weeks before the

Bruins travel to the away city hotel they provide meal requirements to the hotel.

The away city hotel then prepares a BEO setting forth the date, time, designated

meal room, number of guests, menu, and per-person pricing for each meal ordered.

The Bruins will either (1) contact the hotel if changes to the BEO are needed or (2)

accept the offer set forth in the BEO by executing the BEO and returning it to the

hotel for a countersignature. The BEOs also typically provide for the furnishings

and setup of the meal room and the hotel staff that will assist in preparing and

serving the food. The Bruins agree to pay a fee for each meal and a service fee of

up to 22% of the cost of the meals. We find that by engaging in this process with

away city hotels the Bruins are “contract[ing] with another to operate an eating

facility for its employees”.11 See sec. 1.132-7(a)(3), Income Tax Regs.

      11
        Respondent argues that petitioners have not substantiated that the Bruins
contracted with away city hotels to operate meal rooms. Specifically respondent
argues: “[P]etitioners did not note to the Court the repeated instances that the
BEOs, as well as the eventual bills, checks, and invoices show sales taxes were
imposed on the food charges. Such assessments demonstrate that the BEOs were
not contracts for services, but instead, in form and substance, meal purchase
orders.” Respondent concludes that the operation of the away hotel meal rooms
                                                                       (continued...)
                                          - 21 -

      C. Business Premises

      For employee meals at an employer-operated eating facility to qualify as a

de minimis fringe, section 132(e)(2) requires that the eating facility be “located on

or near the business premises of the employer”.12 See also sec. 1.132-7(a)(2)(iii),



      11
        (...continued)
do not reflect “the operation of an established and fixed food preparation and/or
eating facility * * * but only the purchase of a few meals on an individual day to
be held in a private room.” We find no merit to this argument.
      12
           Sec. 119 provides, in pertinent part:

            SEC. 119(a). Meals and Lodging Furnished to Employee, His
      Spouse, and His Dependents, Pursuant to Employment.--There shall
      be excluded from gross income of an employee the value of any
      meals or lodging furnished to him, his spouse, or any of his
      dependents by or on behalf of his employer for the convenience of the
      employer, but only if--

                      (1) in the case of meals, the meals are furnished on the
                business premises of the employer, or

                       (2) in the case of lodging, the employee is required to
                accept such lodging on the business premises of his employer
                as a condition of his employment.

The text of sec. 119 and sec. 132(e)(2) both use the phrase “business premises”.
However, the caselaw relevant to our analysis discusses “business premises” in the
context of sec. 119 and not sec. 132(e)(2). Because Congress has not directed us
otherwise, we construe the phrase “business premises” to connote the same
meaning in both Code provisions. See W. Nat’l Mut. Ins. Co. v. Commissioner,
102 T.C. 338, 359 (1994), aff’d, 65 F.3d 90 (8th Cir. 1995). Neither party argues
to the contrary.
                                        - 22 -

Income Tax Regs. Congress intended a commonsense approach when making a

determination regarding an employer’s business premises. Lindeman v.

Commissioner, 60 T.C. 609, 614 (1973). An employer’s business premises is a

place where employees perform a significant portion of duties or where the

employer conducts a significant portion of business. Benninghoff v.

Commissioner, 71 T.C. 216, 220 (1978), aff’d, 614 F.2d 398 (5th Cir. 1980). It is

not necessary for an eating facility to be located in an employer’s principal

structure for it to be considered on the business premises. Id. Whether an eating

facility is located on or near the business premises of an employer is a factual

issue, and consideration must be given to the employee’s duties as well as to the

nature of the employer’s business. Id. (citing Lindeman v. Commissioner, 60 T.C.

at 615); see also Vanicek v. Commissioner, 85 T.C. 731, 739-740 (1985). An

inquiry regarding business premises “infers a functional rather than spatial unity”

and is not limited by questions of geography or quantum of business activities.

Adams v. United States, 585 F.2d 1060, 1066 (Ct. Cl. 1978).

      This is not the first time we have been asked to decide whether rented hotel

space constitutes a taxpayer’s business premises. In Mabley v. Commissioner,

T.C. Memo. 1965-323, 1965 Tax Ct. Memo LEXIS 6, at *12-*13, we held that a

rented hotel suite used for daily executive lunches constituted part of a company’s
                                        - 23 -

business premises. In Mabley, the Island Creek Coal Co. decided to hold daily

executive luncheon conferences at a suite inside the Prichard Hotel to provide “for

daily contact among the president and his staff members in order that all might

keep informed as to the activities of all departments”. Id., 1965 Tax Ct. Memo

LEXIS 6, at *4. The leased suite consisted of a dining room, a reception room, a

toilet, and a closet. Id. at *5. The luncheon meetings were held at 12:30 p.m. (or

sometimes began earlier or later) and lasted from one to three hours (and

frequently lasted longer). Each staff member was required to attend the daily

meetings. Id. at *5-*6. The Prichard Hotel agreed to provide the company meals

from the hotel kitchen during regular mealtimes at current rates charged to hotel

guests. Id. at *5. In holding that the hotel constituted the business premises of the

company, we reasoned that “the rented hotel suite in which the meals were

furnished was acquired and actually used for the conduct of business of the

company, the furnishing of the meals being merely incidental.” Id. at *12.

      We conclude that away city hotels were part of the Bruins’ business

premises for the years in issue. In arriving at this conclusion we consider the

traveling hockey employees’ performance of significant business duties at away

city hotels along with the unique nature of the Bruins’ business (i.e., professional

hockey). See Vanicek v. Commissioner, 85 T.C. at 739-740; Benninghoff v.
                                       - 24 -

Commissioner, 71 T.C. at 220; Mabley v. Commissioner, 1965 Tax Ct. Memo

LEXIS 6, at *12. First and foremost, the nature of the Bruins’ business requires

the team to travel to various arenas across the United States and Canada, and it is

not feasible for the Bruins to be a viable NHL franchise without participating in

hockey games outside of Boston. The NHL constitution and bylaws obligate each

NHL team to play both home and away games during the regular season and, if the

team qualifies, postseason games. Not only does the NHL require teams to

participate in away games, but it also requires visiting teams to arrive in an away

city at least six hours before the away game commences. The CBA imposes an

additional requirement that visiting NHL teams travel to the away city the day

before game day, if travel by airplane is greater than 150 minutes. Furthermore, if

an NHL team fails to participate in an away game it must forfeit the game, lose

playoff points, incur financial penalties imposed by the NHL, and indemnify the

home team for loss of revenue and other expenses. Therefore, an integral part of

the Bruins’ professional hockey business involves traveling throughout the United

States and Canada to play away games as dictated by the NHL schedule. The job

of the Bruins’ team includes playing one-half of their regular season games away

from their hometown arena, and the financial health of the NHL franchise--not to
                                        - 25 -

mention the NHL itself--would be adversely affected if teams refused to play away

games.

      Staying in away city hotels is indispensable to the Bruins’ preparation and is

also necessary for maintaining a successful hockey operation and navigating the

rigors of an NHL-mandated schedule. The Bruins are a highly respected

professional hockey organization whose goals include fielding a competitive

hockey team, winning as many regular season games as possible, qualifying for

the postseason, and winning the Stanley Cup. The evidence adduced at trial

establishes that away city hotels are essential to the Bruins’ effective preparation,

and like the taxpayer in Mabley, the Bruins use the hotel to conduct business. The

away city hotels provide lodging so Bruins’ players can obtain adequate rest,

which is essential to professional athletes playing a physical sport with games

scheduled in short succession. The Bruins contract with each away city hotel to

set up a private meal room and to provide meals/snacks that meet the players’

specific nutritional guidelines, which ensures optimal performance for the

upcoming game and throughout the remainder of the season. Not only do the

pregame meals provide essential nutrition for the players, but they also serve as a

forum for the Bruins to maximize preparation time and conduct team business.

See Mabley v. Commissioner, 1965 Tax Ct. Memo LEXIS 6, at *12 (concluding
                                        - 26 -

that a rented hotel suite constituted business premises because the hotel suite in

which the meals were furnished was acquired and actually used for the conduct of

business of the company.). Like the meals provided in Mabley, the pregame meals

are mandatory for players (excepting the snack) and provide an opportunity for

Bruins’ players to meet with coaches to strategize and review game film. The

Bruins’ public relations staff uses this time to prepare players for upcoming

interviews and other public-facing issues. It is also a time when the players meet

with staff to receive tickets for family and friends. Coaches, trainers, and

management also use meal time to meet amongst themselves and make roster

adjustments for a variety of reasons.

      Aside from the meal room, the Bruins use other areas in the away city hotels

for preparation. Athletic trainers use hotel space to provide players with medical

treatment, physical therapy, and massages. Players use hotel fitness centers for

strength and conditioning sessions, which help decrease the chance of injury and

maximize athletic performance. Given the nature of the NHL and the Bruins’

game schedule, we see no way that the team’s traveling hockey employees could

perform all these necessary functions exclusively in Boston. The evidence at trial

also establishes that the Bruins could not perform all these activities at the

opponent’s arena because of limited access and insufficient space and facilities.
                                        - 27 -

We thus conclude that away city hotels are vital to the Bruins’ business objective

of winning hockey games and are where a significant portion of the traveling

hockey employees’ responsibilities and the Bruins’ business is conducted. See

Vanicek v. Commissioner, 85 T.C. at 740; Mabley v. Commissioner, 1965 Tax Ct.

Memo LEXIS 6, at *12. Accordingly, we hold that the away city hotels

constituted part of the Bruins’ business premises for the years in issue.

      Respondent acknowledges that the Bruins perform business activities at

away city hotels; however, respondent argues that the traveling hockey employees’

activities at away city hotels are insignificant because: (1) the activities at away

city hotels are qualitatively less important than playing in the actual hockey game

and (2) the Bruins spend quantitatively less time at each away city hotel than they

do at the team’s Boston facilities. Although we agree with respondent that playing

in hockey games is important to the Bruins’ business, it seems that the quality of

play is directly related to the team’s preparation. This preparation includes

business activities that occur at away city hotels, such as: eating nutritious meals,

obtaining adequate rest, meeting with coaches individually or in small groups to

strategize, reviewing game film, receiving athletic treatments and massages, and

completing strength and conditioning workouts. The evidence at trial further

indicates that the strength and conditioning workouts performed by the players at
                                        - 28 -

away city hotels provide important benefits to the players, not just for the

immediate game but throughout the remainder of the season. Without the

preparatory activities that occur at away city hotels the Bruins’ performance

during games would likely be adversely affected. Furthermore, respondent

provides no precedent to support the argument that business premises are limited

to the location where the most qualitatively significant business activity occurs.

      We also disagree with respondent’s argument that away city hotels cannot

constitute the Bruins’ business premises because the team spends quantitatively

less time at each individual away city hotel when compared to the team’s time

spent at its Boston facilities. Although the Bruins do spend quantitatively less

time at each individual away city hotel than they do in Boston, this goes to the

unique nature of a professional hockey team that is required to play one-half of its

games away from home. It is therefore illogical for respondent to ignore the

nature of the Bruins’ business and the NHL and analyze the amount of time spent

at each away city hotel in isolation. See Vanicek v. Commissioner, 85 T.C. at

739-740; Lindeman v. Commissioner, 60 T.C. at 615. Respondent also provides

no precedent to support the proposition that a quantitative comparison of time is

critical to determining business premises. See Adams, 585 F.2d at 1066 (stating

that determinations of business premises “limited to the geographic contiguity of
                                        - 29 -

the premises or to questions of the quantum of business activities on the premises

are too restrictive”). Accordingly, we hold that the away city hotels constituted

part of the Bruins’ business premises for the years in issue.

      D. Revenue/Operating Cost Test

      For employee meals at an employer-operated eating facility to qualify as a

de minimis fringe, section 132(e)(2)(B) requires that revenue derived from the

employer-operated eating facility equal or exceed the direct operating costs of the

facility (i.e., the revenue/operating cost test). Section 132(e) provides that “an

employee entitled under section 119 to exclude the value of a meal provided at

such facility shall be treated as having paid an amount for such meal equal to the

direct operating costs of the facility attributable to such meal.” Regulations

provide that an employer-operated eating facility satisfies the revenue/operating

cost test if the employer can reasonably determine that the meals are excludable to

the recipient employees under section 119. Boyd Gaming Corp. v. Commissioner,

106 T.C. at 353; sec. 1.132-7(a)(2), Income Tax Regs. Meals are excludable to

recipient employees under section 119 if they are (1) furnished for the

convenience of the employer and (2) furnished on the business premises of the

employer. Sec. 119(a).
                                       - 30 -

      Whether meals are furnished for the convenience of the employer is a

question of fact to be determined by an analysis of all the facts and circumstances.

Sec. 1.119-1(a)(1), Income Tax Regs. Meals furnished without charge to the

employee will be considered for the convenience of the employer if the meals are

furnished “for a substantial noncompensatory business reason of the employer.”

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. See Boyd Gaming Corp. v.

Commissioner, 106 T.C. at 349. We further remain cognizant that, if a taxpayer

provides credible and uncontradicted evidence of business reasoning, the Court

will refrain from second-guessing a taxpayer’s business judgment. Boyd Gaming

Corp. v. Commissioner, 177 F.3d 1096, 1100-1101 (9th Cir. 1999), rev’g T.C.

Memo. 1997-445.

      The evidence establishes that the pregame meals at away city hotels are

provided to the Bruins’ traveling hockey employees for substantial

noncompensatory business reasons. The Bruins provide pregame meals to

traveling hockey employees at away city hotels first and foremost for nutritional

and performance reasons. Meals are selected by the Bruins to meet the exacting

nutritional needs of professional athletes, and menus are kept consistent from city
                                       - 31 -

to city to avoid players’ experiencing unexpected gastric problems during games.

The Bruins also provide pregame meals to the traveling hockey employees at away

city hotels because they are subject to a busy schedule and have only limited time

to prepare for an upcoming game. The Bruins play 82 regular season games,

which include 41 away games at locations throughout the United States and

Canada. The record establishes that the traveling hockey employees arrive at

away city hotels the day before the game (or sometimes the morning of the game)

and spend most of their time with preparation activities, such as: ensuring players

get adequate rest; reviewing game film, strategizing, and making roster

adjustments; conducting player-coach meetings; preparing for public relations

inquiries; providing remedial or preventative athletic treatments; and completing

strength and conditioning workouts to maintain player health and optimize

performance. Providing meals to traveling hockey employees at away city hotels

enables the Bruins to effectively manage a hectic schedule by minimizing

unproductive time (e.g., finding and obtaining appropriate meals from restaurants

in each city) and maximizing time dedicated to activities that help achieve the

organization’s goal of winning hockey games. Petitioners have provided credible

evidence establishing the business reasons for furnishing pregame meals to
                                        - 32 -

traveling hockey employees at away city hotels, and we will not second-guess

their business judgment. See id.

      Because we concluded supra p. 23 that the away city hotels were the

business premises of the Bruins, we need not repeat our discussion here.

Accordingly, we hold that petitioners’ provision of meals at away city hotels is for

the convenience of the employer under section 119 and therefore satisfies the

revenue/operating cost test of section 132(e)(2)(B).

      E. Meals Furnished During, Before, or After Employee’s Workday

      Section 1.132-7(a)(2)(iv), Income Tax Regs., provides that the “meals

furnished at the facility are provided during, or immediately before or after, the

employee’s workday.” Respondent concedes that petitioners have satisfied this

requirement.

      We conclude that petitioners’ provision of pregame meals and snacks to the

traveling hockey employees at away city hotels qualifies as a de minimis fringe

pursuant to section 274(n)(2)(B). Accordingly, petitioners are entitled to deduct

the full cost of the meals without regard to the 50% limitation imposed by section

274(n)(1).
                                        - 33 -

II. Entertainment Exception

      Section 274(e)(8) exempts from the 50% limitation of section 274(n)(1)

“[e]xpenses for goods or services (including the use of facilities) which are sold by

the taxpayer in a bona fide transaction for an adequate and full consideration in

money or money’s worth.” Section 1.274-2(f)(2)(ix), Income Tax Regs., provides

that this exception applies to “[a]ny expenditure by a taxpayer for entertainment

* * * to the extent the entertainment is sold to customers in a bona fide transaction

for an adequate and full consideration in money”. Petitioners argue that “[t]he

cost of the meals that the Bruins provide to their players is part of the expenses

that they incur to provide hockey entertainment to their fans” and therefore meets

this exception. Because, as previously decided supra part I, the Bruins’ provision

of meals to their traveling hockey employees at away city hotels satisfies the de

minimis fringe exception of section 274(n)(2)(B), we need not address petitioners’

alternative argument concerning the application of section 274(e)(8).

      In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or

without merit.
                            - 34 -

To reflect the foregoing,


                                           An appropriate order will

                                     be issued denying respondent’s

                                     motion, and decision will be entered

                                     for petitioners.
