Five-Star Exclusion: Modern SiliconValley Companies Are Pushing theLimits of Section 119 by ProvidingTax-Free Meals to Employees

Table of ContentsI. Introduction 2078II. Prevailing Legal Framework for Fringe Benefits.........2083A. The Expansive Definition of Gross Income 2083B. Free Meals as Fringe Benefits 2085III. De Minimis Fringe Benefits 2087A. Statutory Construction of § 132(e) 2087B. The Meals Do Not Constitute De Minimis Fringe Benefits Under § 132(e) 2090IV. Convenience-of-the-Employer Doctrine 2093A. The Development of the Convenience-of-the-Employer Doctrine 2093B. The Modern Standard of the Doctrine Under § 119 2096C. The Role of Business Judgment 2101D. The Meals Fail the Convenience-of-the-Employer Test Under § 119 21051. The Regulations Provide No Business Reasons for the Free Meals ....... 21062. The Companies Can Provide No Alternative Business Needs to Satisfy § 119 ....... 2109V. Conclusion ..... 2112I. IntroductionFor the fourth time, Fortune Magazine named Google the best company to work for in the United States.1 One can easily understand why-the benefits are unparalleled. In California, a day in the life of a "Googler" begins by taking Google's free shuttle from San Francisco to the Mountain View campus.2 She can start the day with a free fitness class before getting a complimentary cappuccino on the way to the office.3 The company also provides a concierge service to handle everyday tasks.4 The concierge can arrange anything from onsite dry cleaning to haircuts or bike repairs.5 During downtime, an employee can go bowling at the campus lanes, receive a massage, or take a dance class.6 All of these benefits are free.7 The company even has expansive mortality benefits if an employee passes away-each child of a deceased employee receives $1,000 per month until he reaches nineteen.8Most strikingly, however, Google provides unlimited meals and snacks to its employees.9 While many companies provide food to their employees in some form, like free coffee and doughnuts for example, Google and other Silicon Valley tech companies separate themselves by their meal plans' level of extravagance.10 Google runs twenty-five cafes at its Mountain View, California headquarters,* 11 and serves over 50,000 meals per day at its 120 cafes around the world.12 The meals are lavish-fresh sushi at Asian-themed Cafe Gia or organic produce from Cafe 150, a restaurant using only local ingredients found within 150 miles of Mountain View.13 Google employees even coined the phrase "the Google fifteen" for the weight gain new employees experience when they have access to unlimited, gourmet food.14Although Google does not disclose the financial impact of its cafe operations, outside estimates suggest a significant expenditure.15 One source puts the cost around twenty dollars per employee each day, which tallies out to approximately $72 million per year.16 Another source believes Google pays closer to ten dollars per employee each day.17 Depending on the calculation, it appears each employee receives between $4,000 to $8,000 in free food each year.18 Yet Google does not report this benefit as taxable compensation to its employees.19 Hence, the employees presumably pay no taxes on this considerable perk.20Other Silicon Valley companies follow Google's lead and provide free meals.21 Facebook has several options for its employees, including two gourmet cafes in addition to barbeque, pizza, burrito, and burger restaurants.22 Zynga, the social gaming tech company, now retains a thirty-three-member culinary staff that feeds 1,200 employees meals such as chicken vindaloo, beef tenderloin, and lobster mushroom bisque. …