Be careful when you grab that office bagel. The Internal Revenue Service may be watching.
The U.S. tax agency is taking a closer look at a popular tax-exempt perk offered by companies such as Google Inc.: free meals.
“There’s really potentially a lot of tax revenue involved,” said Lawrence Zelenak, a tax law professor at Duke University in Durham, North Carolina. “It sounds like you’re being inherently trivial, but I think this is not.”
The rules may address the unusual legal question of whether employees at the Googleplex in Mountain View, California, are more like New York office workers who can duck out for lunch or akin to lumberjacks in a remote logging camp who need to have food trucked in.
Technology companies that use their well-stocked cafeterias as a lure for prospective employees and a way to keep them on campus for longer hours have been challenged by the IRS in recent years, said Marianna Dyson, a tax lawyer at Miller & Chevalier in Washington. She represents some of the companies whose meal policies are being reviewed.
“The IRS has been particularly active on the West Coast with respect to any perks,” she said. “They’re trying to tamp this down. I think they see there’s been a lot of freewheeling delivery of this benefit in these fast-moving workplaces.”
Under U.S. tax law, workers don’t have to pay income or payroll taxes on meals they are provided “for the convenience of the employer.”
The IRS publication on the issue says companies can qualify if employees can’t “otherwise eat proper meals within a reasonable period of time.” It cites the example of a bank teller who has a short lunch break to accommodate the peak traffic period.
Another provision of the U.S. tax code lets companies set up cafeterias to serve those employees and then deduct the full cost of the meals, not just the 50 percent limit that typically applies to business meals.