[Anonymous]

I’ve been tasked by my boss with researching the appropriate tax treatment of employer-paid meals for same-day employee travel. From what I have found, if the trip is same-day, then the employer cannot pay for any meals without it being considered taxable compensation. However, from what I’ve gathered, it’s standard in the Big 4 for employees to have lunch provided by the employer every day that they’re out at a client site, even though they’re not staying out of town overnight. I’m sure the Big 4 wouldn’t be breaking tax law on a daily basis, and also sure that the administrative nightmare involved in reporting the compensation of each person’s $5.67 sandwich would be too ridiculous fore the B4 to be reporting their meals as compensation, but I can’t find anything in the tax code to substantiate the practice of providing free meals when auditors are doing offsite work. Anyone have some tax insights for me?

Here’s what I’ve found so far:

Pub 463 meal deduction guidelines: https://www.irs.gov/publications/p463/ch01.html#en_US_2015_publink100033781 Specifies that must be overnight trip if travel or business entertainment if local to be deductible.

Pub 463 reimbursement guidelines: https://www.irs.gov/publications/p463/ch06.html#en_US_2015_publink100034110 Specifies that an accountable plan must be reimbursing deductible expenses, and an accountable plan is the only way it’s not income.

Section 119 excludable meals: https://www.law.cornell.edu/uscode/text/26/119 Specifies that meals can be excluded from reimbursement for non-travel meals eaten at the employer’s place of business for the convenience of the employer. This wouldn’t apply to off-site meals for same-day travel.

It looks to me like if it can’t be deducted, then it can’t be reimbursed without counting as wages, and if it’s offsite and just one day, then it can’t be deducted or reimbursed. My employer’s situation is employees who are off location for business purposes for the duration of the day, but not overnight, so I assume similar in tax-treatment to the B4 offices who have auditors at an in-town or in-state client location all day. They’re not on-site, but they’re not on overnight trips, either. So, I’m not questioning how the B4 does their meals, but am thinking that if I found the IRS guidelines that allowed the B4 to pay for employee meals, it would probably help me provide a proper report on how we should handle meals for our employees. 🙂

Not sure if this makes any difference – the only IRS articles I have been able to find, except Section 119, have been relating to meal reimbursements. If the meal is purchased directly by the employer (via credit card issued to the employee or some other means), does that affect anything? I wouldn’t imagine it would, but maybe that’s the piece of the puzzle I’m missing, that B4 buys the meals for the employees so therefore isn’t subject to the rules relating to reimbursements…

[livealittle]

could this be part of the non-taxable fringe benefits that are included with employment?

I found the following section in a “training manual” for IRS section 119 which you referenced above.

The rule provided in section 119(b)(4) effectively replaces
the “substantially all” rule provided in section 1.119-1(a)(2)(e)
of the regulations. Section 1.119-1(a)(2)(e) provides, if the
employer furnishes meals to employees at a place of business and
the reason for furnishing the meals to each of substantially all
of the employees who are furnished the meals is a substantial
noncompensatory business reason of the employer, the meals
furnished each other employee will also be regarded as furnished
for a substantial noncompensatory business reason of the
employer.10

the difference is Section 119 starts off talking about business in the hospitality or food service industry. Then it says a lot about for the “convenience of the employer” and at “the employer's place of business”. Then this last section says “At a place of business” for the location. I read this as saying if an employer is providing meals to employees for the employer's convenience and the employee doesn't have a “cash in lieu of” option, then it is not compensation to the employee. That's why it's not on the W-2.

https://www.irs.gov/pub/irs-drop/eemeals.pdf

good luck!

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[PurpleK]

For the employee: Meals and entertainment (for business purposes) that are reimbursed by the employer under an accountable plan (generally means receipts are provided) are not included in wages and cannot be deducted on the employee's personal tax return.

For the employer: Meals and entertainment (for business purposes) reimbursed to the employee are generally limited to a 50% deduction on the employer's tax return.

The above mentioned convenience of the employer rule only applies if meals are provided at the place of employment, not when offsite and traveling.

Any accounting, business or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

[gigabyte2001]

There's some IRS rules about Meals and using Per Diem for Meals expense instead of actual method and both being acceptable as non taxable reimbursement of employee expenses. Can't site it off the top of my head, but look in Publication 15 or 15-A for the answer.

AUD - 87
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REG - 93

.

B - 11/11/16
A - 4/16/16 87!!
R - 2/17/17
F - 7/26/16 - Waiting for 8/23

[Nessie]

Lilla, you might consider doing proper tax research if your employer subscribes to Checkpoint or another provider, it would help you find the exact answer. My tax research professor advised us never to give an answer without proper research and notations.

Go to the Code, then the Regs, then Rulings. Put together in a proper tax memo. If your company subscribes to something, you can easily click on tabs located by the code itself that will give you the answer. Often, an answer is not found in the code itself, but in the interpretations- court rulings etc. BTW, one should not rely on IRS publications (what you are using). The IRS even says this themselves.

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[Anonymous]

Thanks all of you for your thoughts!

livealittle, I looked through the article that you linked and it seemed to all be about on-site meals, but gave me some more ideas about ways to look up more information based on some things it referenced, so was still quite helpful! And fringe benefits pointed me even more in the right direction.

PurpleK, don't worry, I won't be quoting anything from here as “But my CPA said!” hahaha. But appreciate your sharing your thoughts. All I can seem to find is deduction guidelines, nothing clearly spelling out what is and isn't taxable compensation. 😐

gigabyte, I'm going to try to convince the administration here to switch to per diem for next year, cause it'd be sooo much easier than keeping up with receipts…

Nessie, we don't subscribe to any services, cause we're a non-profit that outsources our 990, so the only tax research we do is at times like this when we have a question about whether we're properly handling tax reporting for our employees, contractors, etc. Given that I've never worked in “real” tax (did a year at a micro-firm, but it doesn't really count), I don't even know proper tax research…like I didn't know like you weren't supposed to rely on IRS publications. Like genuinely didn't know. Oy. I thought they were the main guide to use. Maybe I need to find some CPE that goes over the basics of proper tax research, then start this whole process over again…! I'm glad you told me about the publications, though, cause I would've gone on for the rest of my career thinking they were tax authority. 😐

[Nessie]

Lilla,

I actually love researching, but am studying for FAR right now. But I want to help you out. Please look at this “Reg” Remember the “regs” are almost equal to the the code…they are the law. Have a look at this:
**** I did this research based on a normal corp, not sure how non profit would work.

Keep in mind you will have to apply your company's situation…But you can go really deep into court cases. Then it gets jurisdictional. If your company went to tax court in one area, or appeals court in another area, the rules could be different. But the regs are basically the law. Google them if you want……..

Reg §1.61-21 Taxation of fringe benefits.

FTC1.61-21(a)(2)(2) Fringe benefits excluded from income. To the extent that a particular fringe benefit is specifically excluded from gross income pursuant to another section of subtitle A of the Internal Revenue Code of 1986, that section shall govern the treatment of that fringe benefit. Thus, if the requirements of the governing section are satisfied, the fringe benefits may be excludable from gross income. Examples of excludable fringe benefits include qualified tuition reductions provided to an employee (section 117(d)); meals or lodging furnished to an employee for the convenience of the employer (section 119)

Here is another Regulation:

Reg § 1.132-6. De minimis fringes.

Caution: The Treasury has not yet amended Reg § 1.132-6 to reflect changes made by 102-486

check Effective: July 1, 1991. The final amendments to the fringe benefit regulations are effective July 1, 1991.

WG&L Treatises1.132-6(a)(a) In general. Gross income does not include the value of a de minimis fringe provided to an employee. The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable.

1.132-6(b)(b) Frequency.

FTCWG&L Treatises1.132-6(b)(1)(1) Employee-measured frequency. Generally, the frequency with which similar fringes are provided by the employer to the employer's employees is determined by reference to the frequency with which the employer provides the fringes to each individual employee. For example, if an employer provides a free meal in kind to one employee on a daily basis, but not to any other employee, the value of the meals is not de minimis with respect to that one employee even though with respect to the employer's entire workforce the meals are provided “infrequently.”

FTCWG&L Treatises1.132-6(b)(2)(2) Employer-measured frequency. Notwithstanding the rule of paragraph (b)(1) of this section, except for purposes of applying the special rules of paragraph (d)(2) of this section, where it would be administratively difficult to determine frequency with respect to individual employees, the frequency with which similar fringes are provided by the employer to the employer's employees is determined by reference to the frequency with which the employer provides the fringes to the workforce as a whole. Therefore, under this rule, the frequency with which any individual employee receives such a fringe benefit is not relevant and in some circumstances, the de minimis fringe exclusion may apply with respect to a benefit even though a particular employee receives the benefit frequently. For example, if an employer exercises sufficient control and imposes significant restrictions on the personal use of a company copying machine so that at least 85 percent of the use of the machine is for business purposes, any personal use of the copying machine by particular employees is considered to be a de minimis fringe.

Basically, if you want to make a statement, form an opinion, you should AWLAYS back it up with an interpretation of the code.
The code is just a starting point.

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Using Becker Self-Study, Final Review and NINJA MCQs
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[PurpleK]

@Lilla: The reason you are having a hard time is because the business expense deduction is spread across numerous code sections, treasury regulations and decades of court law.

@Nessie: The fact pattern described by Lilla where employees are being reimbursed for meals offsite is not considered a fringe benefit.

@Lilla: The relevant tax authority is as follows:

Section 162(a)(2) – definition of ordinary and necessary expenses paid or incurred in carrying on a trade or business. This code section authorizes a deduction for meals and lodging while traveling.

Section 274 – travel expenses are allowed as a deduction under Section 162 and Section 212, but are subject to numerous restrictions, especially 274(d) which requires substantiation of expenses (also known as an accountable plan) and the 50% limit on deduction of business meals 274(n)

CIR v. Flowers – the Supreme Court set forth three conditions on deductability of traveling expenses. Must be (1) reasonable and necessary, (2) incurred away from home (meaning normal place of business, (3) must be incurred in pursuit of business.

Treas. Reg. 1.62-2(c)(4) – amounts treated as paid under an accountable plan are excluded from the employee's gross income, are not reported as wages or other compensation on the employee's Form W-2, and are exempt from the withholding and payment of employment taxes.

[Missy]

I am fairly certain if you're looking for the appropriate IRS publication its pub 535. Cliff notes version: meal reimbursement is not taxable to the employee under an accountable plan (make them turn in receipts the non accountable plan is a waste of the company's money as its almost always greater than the receipts the employees will turn in.) 50% is deductable for the business as a business expense.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[FIFOisbetterthanLIFO]

For per diem:

http://www.irs.gov/pub/irs-regs/perdiemfaq&a.prn.pdf

From publication 535:

How you deduct a business expense under
a reimbursement or allowance arrangement depends
on whether you have:

An accountable plan, or
A nonaccountable plan.

If you reimburse these expenses under an accountable
plan, deduct them as travel, meals,
or entertainment expenses.

If you reimburse these expenses under a
nonaccountable plan, report the reimbursements
as wages on Form W­2, Wage and Tax
Statement, and deduct them as wages on the
appropriate line of your tax return. If you make a
single payment to your employees and it includes
both wages and an expense reimbursement, you must specify the amount of
the reimbursement and report it accordingly.

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[Nessie]

Purple, I beg to differ. Milla was talking about getting regular paid meals while working for the big 4. This is specifically mentioned in Reg §1.61-21. To mirror her exact situation, she will have to comb through to find a ruling (or several) that is closest to her situation. 2 researchers could probably site several reliable sources. We also don't know her jurisdiction, which would also need to be considered if we are looking at how the courts have opined.

To the others, if you are ever asked to “research” anything at work, you should never use (“cite”) publications to back up your findings. Start with the Code, Regs, then work downward to Rulings.

AUD - 80
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FAR - 80
REG - 88

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REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
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[Missy]

Also if you outsource your 990, that's exactly where I'd start with such questions. We outsource our taxes and my tax preparer is happy to quickly answer such questions for me. Also if you outsource payroll that's another source. Basically your employer just wants you to confirm whether or not you should add reimbursement to a W-2 since the business is tax exempt, I say you should seek tax advice from whomever prepares your tax return.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Anonymous]

Thanks everyone. I know the basic premise of “accountable plan is non-taxable to employees for travel meals”, but everything I've seen seems to indicate that travel meals are overnight. I've also seen that on-site, non-travel meals can be non-taxable to employees, if for the employer's convenience, non-compensatory, etc. However, I haven't found anything specifically addressing offsite meals when overnight travel is not included. That's the piece that's hanging me up.

Nessie, I really appreciate you sharing about the process for researching in the tax law. I tried to do some research that way yesterday and think I found a site that has rulings etc. available for free – probably not set up for research as well as the paid services, but at least they're there! I'm a little confused, though. You've referenced Reg §1.61-21, which discusses fringe benefits, and which mentions means in reference to Section 119. Section 119, however, explicitly states that the meals are furnished on the premises of the employer's business. Are you thinking that if I dug through rulings and such related to this, I might find ones which somehow modified this to included all places where work is happening for the employer, and therefore included the B4 auditor's work at client sites, or something along those lines? Like that the rulings would somehow relax the “must be on the employer's premises” clause to allow meals not on the employer's premises? I had assumed (perhaps in error) when I read in Section 119 that it was only for on-site meals that investigating Section 119 further would be fruitless, but if it's common in researching tax law to have the rulings modify things to that extent, then maybe Section 119 is what I need to investigate.

PurpleK and FIFO – Since we're a non-profit, deduct-ability for the employer isn't a specific concern, but just whether or not this amount should be included in the employee's W-2. Sorry if my initial post wasn't very clear on that. 😐 I know that usually taxability to the employer is at least as big of a concern if not a bigger one (and adding it to the W-2 is often better for the employer's tax, since it's a 100% deduction), so I may have given the wrong impression of what I was needing.

mla, unfortunately our tax preparer's view on most things I've asked him about is “Well, I'm sure others do it, so if you've done it that way for years and not gotten in trouble…” 😐 Just because we haven't had an IRS audit (at least not in recent enough history that I've heard about it – our institution is over a hundred years old, so not going to say it's never happened!) doesn't mean what we're doing is right. So, rather than just approaching with a blank question, I try to do my research, then say “I've been looking at Section 119 and Pub 535, and based on those, it looks like we need to either stop reimbursing employees for meals for single-day travel, or add them to their W-2. Can you look and see what you find?” And then he'll be like “Well I don't see anything different…”

[Nessie]

Lilla,

There are many different ways a person could research this. I took a whole course in federal tax research last year. The professor who was a retired big 4 tax research lawyer taught us never to just quote something, or blurt out an answer. Anything we answer should be backed by an answer that would (to the best of our knowledge) hold in court-even if it is just an internal memo. This is where citing cases comes in…which is also very tricky.

I don't know your whole situation, but I ran across something that mentioned the frequency of the meals-which put a slant on things. You could probably research rulings (keep in mind that the 3 different types of courts mean 3 different jurisdiction issues) and find something that mirrors your situation. It is best to use a service like Thompson Reuters Checkpoint or another service which is updated immediately after a new decision.

Haha, I wish I had time because I would much rather research your question than study for FAR. It would probably take a few hours with a service to comb through cases and prep a memo. You could also search Google, which is not the best way to research, but sometimes can lead you to a ruling. Again, you would have to mindful of the date and if it has since been overruled.

Good luck!

AUD - 80
BEC - 84
FAR - 80
REG - 88

Using Becker Self-Study, Final Review and NINJA MCQs
Sat for BEC Dec 6th, 2016 !!!! 84!!!!!

REG Aug 20/15: 88
AUD: Feb 29/16: 80
FAR: Jun 10/16: 80
BEC?

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[Anonymous]

Earlier today I typed that response, then was checking a couple other threads, came back to this one to check something, and my response was gone, so I thought I'd lost it…now that Nessie's replied to it, apparently it's returned from its brief disappearance. Yay!

Wish I could study FAR for you and let you research this for me. haha. Google is proving to not be the best tax research solution. 😐 Maybe I should ask our tax guy if I can go to his office and borrow his tax tools for a bit, so that I have actual research tools available to me – that way I can have my concern for getting a right answer combined with his resources, and maybe actually get somewhere! Oh well, I'm learning lots along the way about how to use the tools I have, so I guess it's worth it in the long run! Maybe I'm beginning to see what people gain by working for large public accounting firms at some point in their career…

[vodrldnr]

Hi Lilla, I am writing here to say thank you

I really appreciate your reply on my post regarding my job search ..

since I cannot find the post, I just looked up your user ID and found this post, assuming this is the best way to contact you.

again, thank you for your sincere replay. you are really kind..

It ain't About How Hard You Hit

[Author]

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