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IRS May Start Taxing Tech Companies' Free Food For Employees

SAN FRANCISCO (KCBS)— It's one of the big perks and part of the culture of working in some high tech companies; the free food that ranges from organic to gourmet. But it's also gotten the attention of the Internal Revenue Service, who is reported to be looking into companies that offer free meals.

According to IRS rules, if the free food is being offered to promote morale or attract prospective employees, it's considered compensation and needs to be taxed.

Associate Professor David Hasen with Santa Clara University Law School said the meals are being served for non-compensatory reasons.

"There needs to be some reason why it's helpful or beneficial for the employer (some business reason) other than simply to give compensation to the employees in order for the meals to qualify as excluded from gross income," said Hasen.

The reasons have included a business located in a remote area like an oil rig or in professions where more than a half hour for lunch isn't practical.

Hasen said there is also the argument that lunchtime is a time for employees to talk business and kick around ideas.

"It may be valid in certain circumstances, but it's very easy to make that claim anytime you provide free lunches, so that can pose an issue," he said.

According to Hasen, the IRS could have issues with that and would consider the free meals part of a compensation package which should be taxed. It's not clear if the IRS plans to actually crack down and put an end to the free lunches.

(Copyright 2013 by CBS San Francisco. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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