IRS to provide guidance on employer-sponsored meals

Sovos
September 5, 2014

This blog was last updated on June 27, 2021

The U.S. Treasury Department recently released its 2014 to 2015 Priority Guidance Plan. The document included a note that the IRS would provide guidance under sections 119 and 132 of the Internal Revenue Code (IRC) regarding employer-sponsored meals.

The issue of free employee meals has recently come to the fore because the agency has begun cracking down on fringe benefits, The Wall Street Journal reported. Many companies in Silicon Valley, California, such as Google, Twitter and Facebook, offer expansive free buffets, fully stocked kitchens and in-house eateries for their employees free of charge. The IRS said these benefits are taxable and has been addressing the issue during companies’ routine audits. In some cases, the agency has sought back taxes equal to 30 percent of the meals’ value.

While the Treasury Department’s plan said guidance would be given, no details were provided beyond that point. Some tax lawyers have already begun speculating on what advice is to come.

“I suspect this is going to be guidance on these free cafeterias, that the benefit has got to be included in income,” Anne Batter, an employment-tax attorney at Baker & McKenzie, told the Journal.

What does the IRC say about free meals?
The IRS currently lists guidance on fringe benefits in Publication 15-B. There are two exclusions for tax compliance obligations related to the value of meals furnished to an employee from his or her wages that are noted in the publication: The meals are provided on the business premises and for employers’ convenience. The former means the individual is employed on the premises, and the latter is circumstantial.

“You furnish the meals to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay,” the publication read. “This is true even if a law or an employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for your convenience is not sufficient.”

Businesses where employees work remotely, such as an oil rig, typically meet the requirements for the exclusion, the Journal reported. Mary Hevener, an employee-benefits attorney at Morgan, Lewis & Bockius LLP, told the source the meals are a noticeable benefit for employers, which is why many companies will want the exemption. Employees can spend less time on lunch, have access to healthier options and avoid talking business in a location outside of the organization.

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Sovos

Sovos is a global provider of tax, compliance and trust solutions and services that enable businesses to navigate an increasingly regulated world with true confidence. Purpose-built for always-on compliance capabilities, our scalable IT-driven solutions meet the demands of an evolving and complex global regulatory landscape. Sovos’ cloud-based software platform provides an unparalleled level of integration with business applications and government compliance processes. More than 100,000 customers in 100+ countries – including half the Fortune 500 – trust Sovos for their compliance needs. Sovos annually processes more than three billion transactions across 19,000 global tax jurisdictions. Bolstered by a robust partner program more than 400 strong, Sovos brings to bear an unrivaled global network for companies across industries and geographies. Founded in 1979, Sovos has operations across the Americas and Europe, and is owned by Hg and TA Associates.
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