Excluding employer‐provided meals

• Date: 01 October 2019
• DOI: http://doi.org/10.1002/jcaf.22402
• Author: Shirley Dennis‐Escoffier
• Published date: 01 October 2019

COLUMNS

Excluding employer-provided meals

Shirley Dennis-Escoffier

Department of Accounting, Miami

Business School, University of Miami,

Coral Gables, Florida

Correspondence

Shirley Dennis-Escoffier, Department of

Accounting, Miami Business School,

University of Miami, 5250 University Drive,

Coral Gables, FL 33146.

Email: sdennis@bus.miami.edu

ABSTRACT

In a recently issued Technical Advice Memorandum (TAM), the Internal Revenue

Service concluded that the value of employer-provided meals cannot be

excluded from employee income under the “convenience of employer”test

unless the employer establishes a “substantial noncompensatory business rea-

son”for providing the meals. To qualify for exclusion, employers must show a

clear link between that reason and the business need to provide the meals to

employees as well as demonstrating that they are following and enforcing poli-

cies that require furnishing those meals. This article discusses the underlying

tax authorities and the impact of the recently released TAM. Finally, recom-

mendations are provided for employers who currently provide, or plan to provide,

free meals to their employees on premises to ensure they preserve the tax-free

treatment of this employee benefit.

KEYWORDS

employer-provided meals, tax-free employee meals

1|INTRODUCTION

In a recently issued Technical Advice Memorandum (TAM),

the Internal Revenue Service (IRS) concluded that the value of

employer-provided meals cannot be excluded from employee

income under the “convenience of employer”test unless the

employer establishes a “substantial noncompensatory business

reason”for providing the meals. A clear link between that rea-

son and the business need to provide the meals to employees

must be substantiated. Additionally, the business must

show that it is following and enforcing policies and prac-

tices that require furnishing those meals. Without sufficient

documentation, the IRS will likely deny the exclusion

resulting in additional taxable income for employees. For

the first time, the IRS also discussed the impact that new

meal delivery options (such as through mobile phone appli-

cations) may have in determining if employees should

qualify for the exclusion.

This article begins by discussing the tax authorities

under which employer-provided meals can qualify for

exclusion from taxable employee compensation. Only the

US Federal income tax treatment is addressed with a

discussion of state or local income tax treatment beyond

the scope of this work. The details and impact of the

recently released TAM are then discussed. Finally, recom-

mendations are provided for employers who currently pro-

vide, or plan to provide, free meals to their employees on

premises to ensure they preserve the tax-free treatment of

this employee benefit.

2|BACKGROUND

The value of meals provided by an employer to employees

on business premises is generally considered taxable com-

pensation. An exception allows meals to be excluded if they

qualify under Internal Revenue Code (IRC) Section 119(a)

by satisfying the “convenience of employer”test or as de

minimis fringe benefits under IRC Section 132(e). If the

meals do not qualify for exclusion, then they are treated as

taxable employee compensation subject to Federal income

tax withholding and payroll taxes.

Received: 5 April 2019 Revised: 31 May 2019 Accepted: 3 June 2019

DOI: 10.1002/jcaf.22402

116 © 2019 Wiley Periodicals, Inc. J Corp Acct Fin. 2019;30:116–120.wileyonlinelibrary.com/journal/jcaf