Taxation of Employer-Provided Meals

By Royse Law Firm, PC

Many large employers, particularly technology companies such as Google, Facebook, and Twitter, provide free or subsidized meals to their employees.  Reports suggest that the IRS is taking a closer look at the tax treatment of these meals in its audits and additional guidance is expected this year.

The provision of meals to employees can be tax-free for the employee if the facts meet the criteria of either Section 119 or Section 132(e)(2) of the Internal Revenue Code. 

Convenience of the Employer

Under Section 119, employer provided meals must be furnished on the business premises of the employer and for the convenience of the employer.  The tax regulations state that “for the convenience of the employer” includes the following circumstances: (1) having the employee available for emergency calls (which are reasonably expected to occur); (2) the lack of alternative facilities that can be accessed during the lunch break provided; and (3) the provision of meals to restaurant workers.

The most famous case on the subject of “for the convenience of the employer” is that of Boyd Gaming Corporation v. Comm’r, 177 F.3d 1096 (9th Cir. 1999), where a casino provided free meals to employees to avoid security concerns with employees leaving the premises for meals.  The court held that this was for the convenience of the employer and stated that the IRS should not second guess an employer’s legitimate business reasons.

Subsidized Cafeterias

Employee meals provided through an employer’s cafeteria are excludable from income if the cafeteria is owned and operated by the employer and does not operate at a loss.

Conclusion

Companies like Google, Facebook, and Twitter are probably relying on the “convenience of the employer” exception under section 119 for the tax free provision of free meals to employees, however the IRS is believed to be taking a closer look at whether the applicable facts support such a position.  In August 2014, the IRS released its 2014-2015 Priority Guidance Plan, which listed sections 119 and 132 as areas to be addressed through further regulations or other guidance.  As such, we can expect to see something from the IRS this year clarifying its position on the provision of free meals to employees.

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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City. Read My Full Bio

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