Hatt v. Commissioner

Herbert G. Hatt (plaintiff) met and married Dorothy Echols, the president and majority stockholder of the Albert Johann and Sons Company (Johann). Johann was an Indiana corporation that ran a funeral home in Evansville, Indiana. After Hatt and Echols married, Echols transferred a majority of her shares to Hatt and made him president and general manager of Johann. Hatt moved in with Echols, who lived in an apartment in the same building as the funeral home. An ambulance crew, which the funeral home oversaw, also lived in the building. After business hours, Hatt handled business calls and met with customers in his apartment. Evidence showed that it was customary in the area for funeral homes to have someone live in the same building as the funeral home in order to accommodate customers. Although Hatt received a financial benefit from living in the apartment, he did not include the value of that benefit in his gross income for tax purposes, believing it fell within an exclusion for employer-provided lodging. The commissioner of Internal Revenue (defendant) disagreed, finding the exclusion inapplicable because the lodging was not necessary for Hatt's employment. The commissioner therefore assessed a tax deficiency for the years in which Hatt lived in the apartment. Hatt filed a challenge to the commissioner's determination in the United States Tax Court.