Tax Legal Services · Primary-source case analysis

Kowalski: Separate Payroll Accounts Did Not Shield Cash Meal Allowances

By Aneeta Mishra and Timothy Chan

Published May 18, 2026 · Updated October 17, 2026

Decision: Comm’r v. Kowalski, 434 U.S. 77 (1977).

A separate payroll line and a separate employer account did not make these meal allowances tax-free. Commissioner v. Kowalski examined what the troopers actually received and controlled, not just how New Jersey described or booked the payment. The case also kept exclusion from income separate from an expense deduction. Kowalski, 434 U.S. at 80–84 & nn.9–10.

Separate accounts did not settle the employee’s tax treatment

The state maintained separate salary and meal-allowance accounts and did not commingle those funds. The Tax Court even found that the allowance was not intended as extra compensation. But the employee received cash with his pay, could choose whether to spend it on meals and did not have to account for its use. Those facts mattered beyond the employer’s accounting label. Kowalski, 434 U.S. at 80–83.

The exclusion required more than an employer’s label

The Court held that section 119 addressed meals supplied in kind, not a cash payment to purchase them. Employer convenience was not a free-standing substitute for the statutory requirements. That explains why separate bookkeeping and a work-related reason for the allowance did not establish the claimed exclusion. Kowalski, 434 U.S. at 83–84, 90–94.

The actual payment terms supplied the evidence

The allowance was paid in advance, varied by rank and counted toward pension calculations. With a limited military-leave adjustment, it was not reduced when a trooper was away from patrol. The trooper could eat at home within the assigned area or bring food to work. To evaluate an allowance, preserve the actual payroll entries, spending restrictions and accounting requirements rather than relying on its name. These were the historical program’s facts, not a checklist that automatically resolves every current reimbursement plan. Kowalski, 434 U.S. at 79–81 & nn.6–7.

Exclusion and deduction were different questions

The Supreme Court reversed the Third Circuit on November 29, 1977. It did not decide every deduction or every occasional meal payment: The taxpayer did not present one proposed business-expense theory, and the Commissioner had not appealed the Tax Court’s allowance of certain travel expenses. The Court also reserved other possible grounds for supper money and sporadic reimbursements. A current review must separately ask what enters income, what exclusion applies and whether an expense is deductible under the governing tax-year law. Kowalski, 434 U.S. at 81 nn.9–10, 92–93 n.28, 95–96.

Key takeaways

• Identify whether the benefit is cash or property furnished in kind.
• Trace any restriction on how the employee may use the payment.
• Apply the precise premises and convenience requirements of the governing exclusion.
• Report cash allowances unless a current statutory exclusion clearly covers them.