12 Jan 2015 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.
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.
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.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.