The IRS indicated that the existence of expanded delivery options for meals in an area may eliminate the ability of an employer to claim that meals are provided to employees for the convenience of the employer in TAM 201903017.  While the TAM deals with a number of issues in its 50 pages, the consideration of the impact of delivery services such as UberEats is something new in this area.

IRC §119(a)(1) provides for an exclusion for the value of meals provided to an employee by an employer under the following conditions:

(a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to employment

There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if—

(1) in the case of meals, the meals are furnished on the business premises of the employer…

Under IRC §119(b)(4) all meals furnished to employees will be excludable under this rule if over half of the employees to whom meals are furnished are furnished such meals for the convenience of the employer.  That is, once the employer shows a “convenience of the employer” reason for more than one-half the employees to whom meals are furnished, the rest of the employees are simply deemed to receive such meals for the convenience of the employer.

Meals are generally deemed to be furnished for the convenience of the employer if provided for a substantial non-compensatory reason.[1]  Reg. §1.119-1(a)(2)(ii) provides that the following would be examples of substantial non-compensatory reasons for providing the meals. Such reasons include the nature of the employer’s business is such that the employee has a very limited time for lunch, and could not be expected to eat elsewhere in such a restricted period.  Similarly, if there simply insufficient eating facilities in the area where the employee works to allow him/her to obtain a proper meal in a reasonable time period, that also would provide a substantial non-compensatory reason for providing the meals to the employee.

In Boyd Gaming Corp. v. Commissioner, 177 F.3d 1096 (CA9, 1999) the court ruled that the IRS was not allowed to second guess an employer’s justification for any policies it adopted that might lead to employees being unable to obtain proper meals within a reasonable time period.  But the policies must be reasonably related to the needs of the employer’s business and are actually followed by the employer in his/her business.[2]

Key to the situations cited above is the lack of time or ability for the employee to obtain lunch off-site.  But in this memorandum the IRS takes note of the rise of meal delivery services.

Until recently, delivery of meals was generally limited to a few types of restaurants and often working with highly restricted delivery.  However recent years have seen the rapid development and growth of delivery services that will deliver meals from a large variety of restaurants on demand.  Such services include GrubHub, Seamless, DoorDash, Postmates and UberEats. While not available everywhere, they are now available to a significant portion of the United States, particularly in urban and suburban areas.

In this TAM, the IRS notes the impact of this change of circumstance on the analysis of the convenience of the employer test for IRC §119:

There is no specific discussion of meal delivery in section 119, related regulations, or in case law involving this provision. However, until relatively recently, meal delivery options were limited in availability. In the past several years, the proliferation of food delivery services, online ordering options, and mobile phone applications that provide delivery services has made meal delivery options much more abundant now than in the past. That the phenomenon of expanded delivery options is so recent may explain its absence from specific discussions of section 119. There is no discussion in section 119 case law of meal delivery options being available in any specific case, nor is there any statement that meal delivery options should not be considered in section 119 analysis.

The IRS points out the existence of such services undermines the argument that the employee cannot obtain a meal in the time period available as a justification for the exclusion from the employee’s wages:

…[I]f employees have a panoply of meal options that can be delivered to their place of work with just a phone call, through a website, or via a smart phone application, then the requirement in § 1.119-1(a)(2)(ii)(c), that without the employer-provided meals an employee cannot secure a proper meal within a reasonable period, is not met. There is nothing in this provision to indicate that the employee must be able to obtain the meal off business premises. Indeed, the availability of extensive delivery choices mean that the employee has more efficient meal options than a location with no delivery options but many restaurants nearby. By using a delivery service, the employee can continue to work while the food is being prepared and does not have to take time to travel to the eating facility location. Employees with access to abundant and varied meal delivery options are able to secure a proper meal within a reasonable period.

While the availability of meal delivery is not determinative in every analysis concerning § 1.119-1(a)(2)(ii)(c), especially in situations where delivery options are limited, meal delivery should be a consideration in determining whether an employer qualifies under this regulation. In addition, meal delivery options should be considered when evaluating other business reasons proffered by employers as support for providing meals for the “convenience of the employer” under section 119, since in many cases the availability of meal delivery will affect the determination of whether employer-provided meals are necessary for employees to properly perform their duties.

The TAM suggests the IRS may be looking at raising questions about all types of foods provided by employers for employees on site. Other sections of the TAM look into employer provided snacks and other issues related to such benefits provided to employees.

[1] Reg. §1.119-1(a)(2)(i)

[2] AOD 1999-010, August 10, 1999