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employees’ meals unless the meals are: (1) De minimis fringe
benefits under section 132(e) or (2) sold by petitioners in a
bona fide transaction for an adequate and full consideration in
money or money's worth.
Turning first to the de minimis fringe benefit exception,
we find that employee meals provided on a nondiscriminatory basis
are a de minimis fringe benefit under section 132(e) if: (1) The
eating facility is owned or leased by the employer, (2) the
facility is operated by the employer, (3) the facility is located
on or near the business premises of the employer, (4) the meals
furnished at the facility are provided during, or immediately
before or after, the employee’s workday, and (5) the annual
revenue derived from the facility normally equals or exceeds the
direct operating costs of the facility (the revenue/operating
cost test). Sec. 132(e)(2); sec. 1.132-7(a), Income Tax Regs.
The parties do not dispute the applicability of this
five-prong test, and they do not dispute that the first four
prongs have been met. The parties focus on the fifth prong;
i.e., the revenue/operating cost test. For purposes of this
test, an employer may disregard the cost and revenue for any
employee meal that the employer reasonably determines is
excludable from gross income under section 119. Sec.
1.132-7(a)(2), Income Tax Regs.10 Section 119(a)(1) allows an
10 The rule of sec. 1.132-7(a)(2), Income Tax Regs., that
disregards the cost and revenue of sec. 119 meals was originally
prescribed in sec. 1.132-7T(a)(2), Temporary Income Tax Regs.,
50 Fed. Reg. 52309 (Dec. 23, 1985).
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