Citation needed, I guess. Here is a quote from IRS Publication 15-B, Employer’s guide to fringe benefits:See: http://www.irs.gov/publications/p15b/ar02.html#en_US_2014_publink1000193699Lodging on Your Business Premises
You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests.
It is furnished on your business premises.
It is furnished for your convenience.
The employee must accept it as a condition of employment.
Different tests may apply to lodging furnished by educational institutions. See section 119(d) of the Internal Revenue Code
The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging.
On your business premises.
For this exclusion, your business premises is
generally your employee’s place of work. For special rules that apply
to lodging furnished in a camp located in a foreign
country, see section 119© of the Internal Revenue Code and its
For your convenience.
Whether or not you furnish lodging for your
convenience as an employer depends on all the facts and circumstances.
You furnish the lodging to your employee for your
convenience if you do this for a substantial business reason other than
to provide the employee with additional pay. This is true
even if a law or an employment contract provides that the lodging
is furnished as pay. However, a written statement that
the lodging is furnished for your convenience is not sufficient.
Condition of employment.
Lodging meets this test if you require your
employees to accept the lodging because they need to live on your
premises to be able to properly perform their duties.
Examples include employees who must be available at all times and
who could not perform their required duties without being
furnished the lodging.
It does not matter whether you must furnish the
lodging as pay under the terms of an employment contract or a law
fixing the terms of employment.
A hospital gives Joan, an employee of the hospital,
the choice of living at the hospital free of charge or living elsewhere
and receiving a cash allowance in addition to her
regular salary. If Joan chooses to live at the hospital, the hospital
exclude the value of the lodging from her wages
because she is not required to live at the hospital to properly perform
duties of her employment.
S corporation shareholders.
For this exclusion, do not treat a 2% shareholder
of an S corporation as an employee of the corporation. A 2% shareholder
is someone who directly or indirectly owns (at any time
during the year) more than 2% of the corporation’s stock or stock
with more than 2% of the voting power. Treat a 2%
shareholder as you would a partner in a partnership for fringe benefit
but do not treat the benefit as a reduction in
distributions to the 2% shareholder.