The IRS Wants to Take a Bite Out Of Silicon Valley's Free Lunches

No employee perk in Silicon Valley is as cherished as the gourmet meals dished out in corporate cafeterias. But soon, Google's multimillion dollar chicken tab could come with a tax bill from the IRS.

The Wall Street Journal reports:

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, tax lawyers said. 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, the lawyers said.

The recent push to tax catered meals is a "national directive by senior officials," according to the Wall Street Journal. In the eyes of both IRS agents and tax professionals, company-provided meals are a fringe benefit, just like the use of a company car for personal purposes.

However, Silicon Valley firms are already pushing back against the tax, and the issue is expected to end up in court.

But it is a complex area of tax law, and there are exceptions. For example, meals can remain untaxed if they are served for a "noncompensatory" reason for the "convenience of the employer."

The exception generally applies to workers in remote locations, such as oil rigs, or in professions where reasonable lunch breaks aren't feasible. A Las Vegas casino won in court over the issue by arguing that stringent security made it impractical for employees to eat outside the premises.

Companies such as Google and Facebook, which are notorious for their lavish cafeterias and ubiquitous snack stations, could argue that free meals are a "time-saving" cost. By providing employees with meals, workers can return to their desks faster than if they left their suburban campuses for lunch. Thus feeding employees minimizes the downtime experienced by eating, boosting productivity and potentially satisfying the "convenience of the employer" exemption.

At least one company has found another more straight-foward way to deal with the tax. An attorney who spoke to the Wall Street Journal said one company simply pays its employees an additional bonus to cover the costs of the meal tax.

Or they could just do away with free food altogether and feed their employees Soylent.

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Photo: AP