Are Free Lunches at Your Company Fringe Benefits?

Occasionally, I stop for a bagel on my way into work. On Fridays, however, my office offers a carbohydrate smörgåsbord: bagels and donuts and donut holes. Oh, and fruit.

So Friday, instead of scrambling eggs at home (about 90 cents) or buying a bagel (about $2), I load up on carbs for free at the office.

Should I be taxed on that amount? The answer turns on whether the IRS considers my bagel a fringe benefit.

But the issue is much bigger than just bagels. The Wall Street Journal reports that the IRS is considering whether the famous free meals at companies like Google and Facebook should be taxable as income.

The Internal Revenue Code excludes certain employer-provided meals from the definition of income. Exempt, employer-provided meals must be furnished on the employer's business premises or for the employer's convenience. The IRS explains that meals are provided for the convenience of the employer if they are provided for a substantial "noncompensatory" reason. That determination depends on the facts and circumstances, but the agency offers examples of situations in which meals could be furnished for substantial noncompensatory reasons:

• Workers need to be on call for emergencies during the lunch period
• The nature of the business (not merely a preference) requires short lunch periods
• Eating facilities are not available in the area of work
• Meals are furnished to restaurant employees, before, during or after work hours
• Meals are furnished to all employees, if meals are furnished to substantially all the employees for substantial noncompensatory reasons
• Meals are furnished immediately after working hours because the employee's duties prevented him or her from obtaining a meal during working hours.

In Silicon Valley, you would be hard-pressed to find a company that doesn't feed its staff. That's just how things work in startup world: Employees work crazy hours to launch a business. Twelve-hour days are common. But when companies evolve from scrappy startups into major corporate players, are the free meals still necessary?

If your company offers free meals to employees, it may be time to reevaluate whether those meals are really for the employer's convenience.

Related Resources:

• No Free Lunches in Silicon Valley?!? Our Tax Analysis (Silicon Valley Business Journal)
• Cal Supreme Court Says Employees Can Work Through Lunch Break (FindLaw's California Case Law Blog)
• In Law Marketing No Such Thing as a Free Lunch (FindLaw)