Staffers at technology companies such as Google Inc, Facebook Inc.
and Twitter Inc. long have enjoyed free gourmet meals, courtesy of
their employers. The groaning buffets, in-house pizza joints, and kitchens
stocked with organic produce are an intrinsic part of the culture in much of
Silicon Valley, encouraging both collaboration and longer work hours.
The IRS, arguing that these freebies are a taxable fringe
benefit, has given new attention to the issue in recent months during routine
audits of some companies. When employers haven't been withholding taxes related
to the meals, the IRS increasingly has sought back taxes that can amount to 30%
of the meals' fair-market value.
In another sign of a new focus on the issue, the IRS and
U.S. Treasury Department last week included taxation of "employer-provided
meals" in their annual list of top tax priorities for the fiscal year
ending next June. The agencies said they intend to issue new
"guidance" on the matter, but gave no specifics about timing or what
the guidance would say.
Tax lawyers expect some employers will fight the IRS over
the matter, and said the issue is likely to be decided in the courts. Any broad
IRS crackdown could spur complaints about petty government interference with
the culture of a crucial industry.
Critics say allowing free meals to go untaxed distorts the
economy and gives some employers an unfair edge. In theory, individual
employees could be dunned for back taxes on the free meals. In practice, the
IRS generally tries to collect from employers, who are liable for failing to
withhold taxes on any taxable income.
IRS interest in the free-meals issue ticked up last year, after
The Wall Street Journal published an article focusing on whether the food
should be considered a taxable benefit. In general, employer-provided
meals—beyond those served at the occasional business meeting—are a taxable
fringe benefit, similar to personal use of a company car or the value of
employer-paid life-insurance coverage above the IRS threshold of $50,000.
But it is a complex area of tax law, and there are
exceptions. The exception generally applies to workers in remote locations,
such as oil rigs, or in professions where reasonable lunch breaks aren't
Even if tax-free meals eventually go away, that won't
necessarily spell the demise of Silicon Valley's no-cost buffets. Marianna
Dyson, an attorney at Miller & Chevalier in Washington, said she knows of
at least one Silicon Valley company that provides free food, but "grosses
up" its employees, paying them extra to cover additional taxes owed on the
here to access the full article on The Wall Street Journal.