IRS revokes ruling that employer-provided lunches are nontaxable to employees.

• Author: Elinsky, Peter I.

The IRS has issued a technical advice memorandum revoking an earlier, unspecified ruling that free, employer-provided lunches were nontaxable to the employees (Letter Ruling (TAM) 9143003). The ruling provides that the lunches are taxable to the employees because the company did not establish a valid noncompensatory business reason for providing free lunches.

Facts

Company was a nationwide business that operated from a single location. Company limited its employee lunch periods to 30 minutes and provided free lunches to employees on its business premises. Company's peak business hours were between 11:00 a.m. and 1:00 p.m.; Company required most of its employees to be at their desks to answer telephone calls and to keep operations running smoothly. Company claimed that outside eating facilities were insufficient, and that employees would not be able to eat lunch at an outside facility within the 30-minute lunch period. (Company submitted a study by an outside consulting firm supporting its claim.) Company required all employees to remain on the premises for the entire workday because in many cases employees would be called while at lunch to attend to Company business. In certain cases, employees were called away from lunch as many as three times a week.

Convenience of the employer

Sec. 119(a) provides that meals furnished to employees for the convenience of the employer are excludible from the employee's income if the meals are furnished on the employer's premises. In determining whether meals are furnished for the convenience of the employer, each case must be analyzed based on its particular facts and circumstances (Regs. Sec. 1.119-1(a)(2)). Circumstances that justify the conclusion that meals are being provided for the employer's convenience include the following.

* The need to have employees available for emergency calls during meal periods.

* The fact that the employer's business requires that the employees be restricted to a shorter meal period, such as 30 minutes, and that the employee cannot be expected to eat elsewhere in such a short period.

* There are insufficient eating...