Two sisters and their brother, all unmarried, own and operate a dairy farm. They live on the farm and take their meals there for the "convenience of the employer." The fair market value of their lodging is $45,000, and the fair market value of their meals is $18,000. The meals are prepared by the farm cook, who provides their meals along with those of the eight other farm employees.
a. Determine the tax consequences of the meals and lodging to the sisters and their brother if the farm is incorporated.
b. Determine the tax consequences of the meals and lodging to the sisters and their brother if the farm is not incorporated.