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A Taxable Feast? IRS Sets Sights on Free Lunches

Silicon Valley is known for free perks--the most ubiquitous being free meals. But should they be taxed? The IRS thinks so.
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Silicon Valley’s free company lunches are a source of national conversation. Google’s cafeteria, in particular, is the subject of curiosity, envy, awe: Bon Appetit Magazine, for example, has raved about Google’s crispy pork carnitas, butterscotch-pecan-cookie pie, even going so far as to track down the tech company’s lime-walnut tart recipe. And Facebook often brings in celebrity guest chefs.

These gourmet free meals are undeniably a huge perk; they may also be a taxable one.

The Wall Street Journal reported this morning that the Internal Revenue Service is conducting an investigation into whether all this free food constitutes a fringe benefit, on which employees can be taxed.

Tax rules regarding fringe benefits are complicated, to say the least. Meals provided by an employer are generally considered taxable, with the notable exception of meals that are served for the “convenience of the employer.”

What does that mean? In broad terms, the outlet pointed out, it covers any unusual circumstance where employees can't reasonably be expected to buy outside food-- such as on-call firemen, bank tellers with a short window for lunch are both eligible to receive un-taxed free lunches. The IRS also states that meals can go untaxed if “there are insufficient eating facilities near the place of employment,” which keeps things ambiguous enough for Silicon Valley firms to argue that there are not a satisfactory number of eating options nearby.

Here's the catch: The IRS clearly states that meals handed out “to promote goodwill, boost morale, or attract prospective employees” are taxable.

If the IRS prevails, and free lunches become taxable, a fair-market value for each meal consumed by an employee will be added to his or her pay-stub. An easy option for tech giants like Google (a company famous for throwing money at its employees in creative ways): simply add the extra money to employee’s salaries to cover the cost of additional taxes.




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