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Could All That Free Food Get Tech Companies in Trouble with the Tax Man?

No such thing as a free lunch, pal.
In the real world, this costs money. (Photo: Flickr.com/blueace)

In the real world, this costs money. (Photo: Flickr.com/blueace)

Free food is such a staple of Startupland that when Marissa Mayer introduced free food to Yahoo, she was heralded like Moses stepping down from Mt. Sinai, stone tablets in hand. But the Wall Street Journal reports that all that gratis grub could land tech companies in trouble with the IRS.

That’s because, to the enforcers in Washington, these perks look an awful lot like another form of compensation, and the IRS often considers regular meals a taxable benefit.

The Journal reports:

 “If they’re in there auditing, and you’re not taxing the meals, they’re going to challenge you on it,” he said. “I have worked on audits for large tech companies in Silicon Valley on this exact issue,” he added, but declined to name the clients.

In fact, it sounds like one tax expert is taking this a little personally:

“I buy my lunch with after-tax dollars,” said Mr. McMahon, the University of Florida professor. “And I have to pay taxes to support free meals for those Google employees.”

A little back-of-the-envelope math based on Betabeat’s own track record with Seamless suggests that would add up to a pretty penny. The Journal says, though, that while it’s technically the individual employees who’d be on the hook, the IRS would typically penalize the offending company.

Of course, if the IRS does come calling, companies can argue it’s for their convenience (i.e., keeping those coders at work late into the night), rather than an additional form of compensation. Of course, that would likely require owning up to the fact that free food is not simply a perk but another means of keeping employees tied to their desks, forever and ever, until they die. Lean in to supper!

Follow Kelly Faircloth on Twitter or via RSS. kfaircloth@observer.com