Rev. Rul. 71-411

The Internal Revenue Service has been asked how the value of meals furnished to employees by an employer under the circumstances outlined below should be treated for Federal Income tax purposes.

The employer is a large corporation with a main office and several branch offices in the same city. It provides services that require extensive direct contact, in person and over the telephone, between its employees and its customers. Some of this contact occurs during the lunch period of the employees. The main office and some of the branch offices have eating facilities. Other branch offices do not have eating facilities.

It has been the custom of the employer to furnish a meal to each of its employees without charge. Attendance at meals is not required, but most employees do, in fact, accept the meals. The time allowed for lunch is limited to one hour. Many of the employees are free to attend to personal errands outside their respective buildings after they have eaten lunch, but they are still required to return to work within the hour period.

At the main office and some of the branch offices the employees are served their meals in dining areas. Telephones are installed in these areas so that the employees may receive calls from customers and from officials of the corporation during the meal period. Certain employees are served at their desks in order that they may continue to perform their tasks during the meal period. At one of the branch offices having no cooking facilities the employees are served meals transported there by truck. Employees of branch offices with no eating facilities are served meals at a branch office having eating facilities.

The employer also has night employees who are served supper, an after-midnight meal, or breakfast. All of the night employees, because of their work load, are limited to 30 minutes for their meals, and all meals are served to them during their respective working hours, at their place of work. At these hours, many outside eating establishments are closed.

The meals furnished all of the employees are prepared and served by personnel in the employer's food department. The employees of this department are also furnished meals by the employer.

Section 119 of the Internal Revenue Code of 1954 provides that there shall be excluded from the gross income of an employee the value of any meals or lodging furnished to him by his employer for the convenience of the employer, but only if, in the case of meals, the meals are furnished on the business premises of the employer.

Under section 1.119-(a)(2)(i) of the Income Tax Regulations meals furnished by an employer without charge to the employees will be regarded as furnished for the convenience of the employer if such meals are furnished for a substantial noncompensatory business reason of the employer. The regulations provide several examples of meals that satisfy this test.

Section 1.119-1(a)(2)(ii)(a) of the regulations provides that meals will be regarded as furnished for a substantial noncompensatory business reason of the employer when the meals are furnished to the employee during his working hours to have the employee available for emergency call during his meal period. In order to demonstrate that meals are furnished to the employee to have the employee available for emergency calls during the meal period, it must be shown that such calls have actually occurred, or can reasonably be expected to occur, in the employer's business that have resulted, or will result, in the employer calling on the employee to perform his job during his meal period.

Section 1.119-1(a)(2)(ii)(b) of the regulations provides that meals will be regarded as furnished for a substantial noncompensatory business reason of the employer when the meals are furnished to the employee during his working hours because the employer's business is such that the employee must be restricted to a short meal period, such as 30 or 45 minutes, and because the employee could not be expected to eat elsewhere in such a short meal period. For example, meals may qualify under this subdivision when the employer is engaged in a business in which the peak workload occurs during the normal lunch hours.

Section 1.119-1(a)(2)(ii)(c) of the regulations provides that meals will be regarded as furnished for a substantial noncompensatory business reason of the employer when the meals are furnished to the employee during his working hours because the employee could not otherwise secure proper meals within a reasonable meal period.

Section 1.119-1(a)(2)(ii)(d) of the regulations provides that a meal furnished to a restaurant employee or other food service employee for each meal period in which the employee works will be regarded as furnished for a substantial noncompensatory business reason of the employer, irrespective of whether the meal is furnished during, immediately before, or immediately after the working hours of the employee.

The question whether meals are furnished for the convenience of the employer is one of fact to be determined from all the facts and circumstances in each case. It must also be determined whether the meals are furnished on the business premises of the employer. The term "business premises" of the employer generally means the place of employment of the employee. See Conference Report, H. Rept. 2543, 83d Cong. 26-27 (1954) and section 1.119-1(c)(1) of the regulations. However, in a case where the employee receives his meals at a place other than his place of employment, but at a place where the employer carries on a significant portion of his business, the employee will be considered as having received his meals on the business premises of his employer within the intent of section 1.119-1(c)(1) of the regulations. See Commissioner v. Anderson, 371 F. 2d 59 (1966), Cert. denied 387 U.S. 906 (1967).

The facts in this case indicate that the meals served in the dining area of the main office to employees who work in that office, and the meals served in the dining areas of the branch offices to the respective employees of those branches are served on the business premises of the employer. This also is true where meals are served at the desks of employees, and where meals are transported to a branch office and served to the employees from steam tables.

It has been demonstrated that the employees who are served meals at their desks are needed for urgent business or special projects that have actually occurred or can reasonably be expected to occur, that have resulted, or will result, in the employer calling on them to perform their duties during the meal period. It also has been demonstrated that some of the employees who are served in the various dining areas are needed, because of the nature of the business of the employer, in the event urgent business or a special project should arise during the meal period. Therefore, all the meals furnished these employees under these circumstances are furnished for the convenience of the employer.

With respect to employees who are free to attend to personal errands outside of their place of employment during the meal period, it follows that they are generally not needed for urgent business or special projects and it is not likely that they would be called from their meals for such purposes. The meals furnished these employees under these circumstances are generally not furnished for the convenience of the employer, and thus are not excludable from gross income unless such employees can establish under the facts and circumstances of their particular case that they do in fact meet the exclusion requirements of section 119 of the code.

Employees who work in a branch office having no eating facilities but who go to a branch that has eating facilities are considered as having received their meals on the business premises of their employer within the intent of section 1.119-1(c)(1) of the regulations, since a significant portion of the employer's business is carried on at the place where the employees receive the meals.

The night employees whose work period includes either a supper, an after-midnight meal, or a breakfast are furnished meals at their places of employment during their respective working hours. Because of the workload, these employees are limited to a meal period of 30 minutes and, therefore, could not be expected to eat elsewhere in such a short meal period particularly in view of the limited outside eating facilities available during the night hours. Thus, it is held that these meals are furnished for a substantial noncompensatory business reason of the employer within the meaning of sections 1.119-1(a)(2)(ii)(b) and 1.119-1(a)(2)(ii)(c) of the regulations.

Meals furnished the personnel of the food service department are furnished for a substantial noncompensatory business reason of the employer within the meaning of section 1.119-1(a)(2)(ii)(d) of the regulations.

Accordingly, the value of meals furnished employees by their employer under those circumstances outlined herein where the meals are considered as being furnished (1) for the convenience of the employer, and (2) on the business premises of the employer, may be excluded from the gross income of the employees under the provisions of section 119 of the Code. Conversely, where the circumstances are such that either of these two conditions is not met, the value of such meals is not excludable from the gross income of the employees.

Section 31.3401(a)-1(b)(9) of the Employment Tax Regulations relating to the Collection of Income Tax at Source on Wages (chapter 24, subtitle C, Internal Revenue Code of 1954) provides that the value of any meals or lodging furnished to an employee by his employer is not subject to withholding if the value of the meals or lodging is excludable from the gross income of the employee.

Accordingly, if the value of meals furnished employees by their employer is excludable from the gross income of the employees under section 119 of the Code, it is not subject to the withholding of income tax. Conversely, if the value of such meals is not excludable from the gross income of the employees, it is "wages" subject to the withholding of income tax under section 3402 of the Code.

The value of meals furnished employees by their employer represents "wages" for purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act (chapters 21 and 23, subtitle C, Internal Revenue Code of 1954). Whether the meals are furnished "for the convenience of the employer" is immaterial for purposes of those Acts. Rev. Rul. 62-150, C.B. 1962-2, 213.