Announcement 98-78: employee meals settlement.

• Position: IRS Announcement 98-78

On September 4, 1998, Tax Executives Institute submitted the following comments to the Internal Revenue Service on Announcement 98-78, which proposes a settlement initiative relating to the application of section 119 of the Internal Revenue Code to meals provided to employees in the hospitality industry, which includes casinos, hotels, resorts, and similar establishments. The comments, which took the form of a letter to IRS Commissioner Charles O. Rossotti, were prepared under the aegis of the Employee Benefits and Payroll Tax Subcommittee of TEI's Federal Tax Committee, whose respective chairs are Mitchell S. Trager of Georgia-Pacific Corporation and Philip G. Cohen of Unilever United States Inc.

On August 24, 1998, the Internal Revenue Service issued Announcement 98-78, proposing a settlement initiative relating to the application of section 119 of the Internal Revenue Code to meals provided to employees in the hospitality industry, which includes casinos, hotels, resorts, and similar establishments. The announcement was published in the August 24, 1998, issue of the INTERNAL REVENUE BULLETIN (1998-34 I.R.B. 30).

As you know, Tax Executives Institute is the premier association of corporate tax executives in North America. The Institute's 5,000 members represent the largest 2,800 companies in the United States and Canada, and are dedicated to the development and implementation of sound tax policy, to the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of tax administration for the benefit of both taxpayers and the government. Because the settlement initiative has the potential for advancing these goals, we commend the Internal Revenue Service for developing the announcement. We believe that Announcement 98-78 represents a good first step to resolving the vexing issues surrounding the provision of employer-provided, on-premises meals. Because the employee-meals issue is not limited to the one industry, TEI urges the IRS to open the settlement initiative to all taxpayers.(1)

Background

Section 119(a)(1) of the Code provides an exclusion from an employee's gross income for the value of any meals if they are furnished (i) for the convenience of the employer and (ii) on the business premises of the employer. Meals without charge will be regarded as furnished for the convenience of the employer if they are furnished for a substantial, noncompensatory business reason of the employer. Treas. Reg. [sections]...