Technical Advice Memorandum 201903017 (Sept. 14, 2018)
Available at https://www.irs.gov/pub/irs-wd/201903017.pdf
The IRS has released a 50-page Technical Advice Memorandum (TAM) analyzing an employer’s practice of providing free meals and snacks to employees, concluding that the snacks were excludable from employees’ income as de minimis fringe benefits, and that only a portion of the meals were excludable under Code § 119. (As background, de minimis fringe benefits include any property or service with a value so small that accounting for it is unreasonable or administratively impractical. Code § 119 allows employer-provided meals to be excluded if they are furnished on the employer’s business premises “for the convenience of the employer,” a requirement the applicable regulations equate with being furnished for a “substantial noncompensatory business reason.”) The employer under examination provided employees, contractors, and visitors with free meals, which were consumed in a cafeteria and at employees’ desks. The employer also provided unlimited snacks and drinks in designated snack areas. The employer offered a variety of business reasons for its practice—to encourage collaboration, protect confidential information, keep employees safe, and improve employee health; and because meals could not be obtained nearby within a reasonable time, employees’ job demands allowed only a short break, and employees had to be available to handle emergencies.
The TAM affirms the IRS’s authority to determine whether the policies and practices identified as reasons for employer-provided meals are followed and enforced, and “whether [those] policies and practices, and the needs and concerns they address, qualify as a substantial noncompensatory business reason for furnishing meals.” The TAM explains that employers must substantiate their policies by showing they are enforced and demonstrate that the policies “relate to” furnishing meals necessary for employees to properly perform their duties. The TAM declines to consider employees’ ability to bring food from home when evaluating necessity but asserts that meal delivery should be a consideration. The TAM then analyzes each of the employer’s business reasons for providing meals—along with its supporting documentation—and finds nearly all unsupported by policy, inadequately substantiated, or both. One exception is the employer’s need to have certain employees available to handle emergencies. The TAM finds that reason sufficient as to some employees, but judges the employer’s substantiation inadequate to identify which employees were reasonably expected to respond to emergencies, and how often emergencies arose at meal time.
Regarding snacks, the TAM concludes that the unlimited employer-provided snacks cannot be excluded under Code § 119 because they do not qualify as “meals.” But they are excludable as de minimis fringe benefits because it would be administratively impractical to quantify the value consumed by each employee, given the low value of each portion and employees’ open access.
EBIA Comment: This TAM seems consistent with the IRS’s recent Chief Counsel Advice memorandum (CCA) addressing the exclusion for employer-provided meals under Code § 119 (see our Checkpoint article). (Although it was released later, the TAM is dated about six weeks earlier than the CCA and thus was likely part of the “pattern of cases” that prompted the CCA.) The TAM, however, is valuable in its own right for its insight into the amount and types of information the IRS may require as substantiation that an employer policy exists, is enforced, and sufficiently relates to the provision of meals to support an income exclusion. The TAM’s lengthy (and heavily redacted) analysis of the employer’s claim that meals were furnished so employees could be available to handle emergencies shows the difficulty in proving just how many meals are excludable. The TAM also demonstrates how much greater an employer’s substantiation burden may be if its goals are not supported by clear, formal policies necessitating employer-provided meals. For more information, see EBIA’s Fringe Benefits manual at Sections VII (“De Minimis Fringe Benefits”) and XVI (“Employer-Provided Meals”).
Contributing Editors: EBIA Staff.