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12/9/2014

The Adage Is Right. There Really Is No Free Lunch

Written by Guy Schmitz J.D., LL.M.

 

The IRS has decided to look at tax-exempt meals offered by Google (and other companies) to its employees.

 

Once again we have an example of the core of tax law (and all law for that matter): the application of a general principle to specific facts.  See below.

 

Technology companies (sitting on wades of cash) have really nice cafeterias where employees can get free meals so they will stay on the campus for longer hours.  Of course, since the employees are probably salaried (rather than waged), the cost of the meals to the tech companies is assumedly offset by the extra hours the employees are working for no additional pay.

 

Under the Code, employees do not have to pay income or payroll taxes on meals they are provided “for the convenience of the employer.”  The IRS has expanded on the Code (in one of its publications) by getting more specific, saying that the companies can qualify if the employees cannot “otherwise eat meals within a reasonable period of time.”  The publication uses an example: a bank teller who has a short lunch break during the peak traffic period.

 

Of courses, it gets better.  The Code also provides that companies like Google can serve the meals and deduct the full cost, not just the 50 percent limit which usually applies to business meals.

 

The IRS smells tax avoidance, and so the Treasury Department has included the “free lunch” issue just described on its list of administrative priorities published July 1.  (Practitioners would be well advised to review the list.  What issues affect my practice?)

 

What is most at risk, to cut the issue even more finely?  Breakfast and dinner at Google and other tech companies.  Surely an employee can have breakfast at home?  Thus, breakfast is most at risk.  Dinner is next.  Assumedly employees leave at some hour and can have dinner at home or out (but not in the Google cafeteria).  Lunch is probably the safest from attack.  Google is in Mountain View, California, in Silicon Valley, rich in technological companies.  Imagine (if you can) all the employees of the tech companies buying lunch at roughly the same time.  So perhaps the adage is wrong -- at least for lunch.


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