Exhibit 2, 371 FW 3,

Internal Revenue Code Regulations:
Lodging Furnished for the Convenience of the Employer

Under limited and clearly defined circumstances, Internal Revenue Service (IRS) regulations provide that the value of quarters furnished to employees is not taxable to the employee nor subject to OASDI/Medicare withholding. As discussed at 26 U.S.C. 119, in order for the value of such lodging to be tax exempt, all the following conditions must be met:

        1. The lodging is furnished for the convenience of the employer;

        2. The employee is required to accept such lodging as a condition of employment; and

        3. The lodging is furnished on the business premises of the employer.

Each of these conditions is defined in more detail below. Under Department policy, employees pay rent on quarters based on the fair value of the quarters. Therefore, when these conditions are met, salary for income tax and OASDI/Medicare purposes will be equal to the employee's gross wages less rent paid or withheld.

"For the convenience of the employer" means that there must be a direct relationship between the housing furnished to the employee and the business interests of the employer.

"Required to accept the lodging as a condition of employment" means that the employee is required to accept the lodging in order to be able to properly perform the duties of employment. This does not mean that the employee must have been compelled to accept lodging to secure or retain employment, nor is the mere presence of a statement to this effect in an employment agreement sufficient. Rather, this condition relates to a practical working necessity for the proper performance of assigned duties.

The "business premises of the employer" is defined as the location where either the employee performs a significant portion of his duties or the location where the employer operates a significant portion of this business. Actual ownership of the location is not the determining factor.

The duties performed by the employee that necessitate required occupancy must be specific and identifiable, and not normally performed by employees who do not occupy Government furnished quarters. The duties may be "position specific," e.g., duties assigned to the park superintendent that require his/her availability at all times. Alternatively, the duties may be assigned in addition to regular duties as a direct result of occupying the quarters. For example, one of the fifty park rangers assigned to a park may be required to occupy specific quarters in order to provide security and quick emergency response to a remote area of the park.

The third condition, regarding location of the quarters on the business premises of the employer, must be decided on a location by location basis with special attention to any housing located outside of park or refuge boundaries. Required occupancy in quarters not located on "business premises" would not qualify for exemption from income and OASDI/Medicare taxes. Although this may appear to be inequitable in some circumstances, the situation is the direct result of IRS regulations over which the Department exercises no control.

The determination that an employee is a required occupant must be supported by facts and clearly documented. It is critical that the IRS regulations be strictly applied since it is the employee filing his/her annual tax return, not the Department, who will be ultimately liable should the IRS disallow the exclusion.