Adams v. The United States

585 F.2d 1060 (1978)

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Nature of the Case

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Facts

P was president of Mobil Sekiyu Kabushiki Kaisha (Sekiyu), a Tokyo-based Japanese corporation that was wholly owned by Mobil Oil Corporation. Mobil had several thousand service stations in Japan and was also involved in two joint ventures with Japanese companies which owned and operated four refineries. Mobil maintained a compensation policy for its American employees assigned outside the United States. Mobil procured housing for such employees, regardless of their position or duties. Mobil calculated the approximate average housing costs in the United States at various family sizes and income levels. Mobil then subtracted from that employee's salary the amount of his particular U.S. Housing Element. If the employee instead obtained his own housing abroad, Mobil reimbursed him for the full amount, subject to certain predetermined limitations based upon reasonableness, and the employee would then include the full amount reimbursed in his gross income. Mobil provided P with a residence for the years in question. The three-level house was 3 miles from headquarters and consisted of a large living room, dining room, pantry and kitchen, three bedrooms, a den, two bathrooms, two maid's rooms, two garage areas, and a garden and veranda. By American standards, the house was not large, but it was apparently choice. Sekiyu felt that it was important to house its chief executive officer in prestigious surroundings because, in Japan, there is less of a distinction than in the United States between business activities and social activities. The effectiveness of a president of a company in Japan is influenced by the social standing and regard accorded to him by the Japanese business community. If the president of Sekiyu had not resided in a residence equivalent to the type provided it would appear that he would have been unofficially downgraded and slighted by the business community and his effectiveness for Sekiyu correspondingly impaired. Sekiyu, therefore, provided such a house to P and required him to reside there as a matter of company policy. The den was built specifically for the conduct of business, and the kitchen and living room were sufficiently large for either business meetings or receptions. P worked in the house in the evenings and on weekends and held small meetings there for mixed business and social purposes. He regularly used the telephone for business purposes from his home after regular working hours, both for business emergencies and also for communicating with persons in the United States because of the time difference. P regularly discharged his business entertainment responsibilities in the residence, generally averaging about 35-40 such occasions in a normal year. P was provided with two maids, only one of whom was needed for his family's personal requirements. For his taxes P included the value of the housing furnished him by his employer, using the U.S. Housing Element amounts which had been subtracted from his gross salary. However, the cost of housing in Tokyo in those years was considerably higher than that in the United States, it is agreed by the parties that the fair rental value of the residence furnished plaintiff by Sekiyu was $20,000 in 1970 and $20,599.09 in 1971 vs. a little over $4,300 in the U.S. D just couldn’t resist and assessed the difference. P paid it and filed suit. The courts ruled for D and P appealed.