Federal income tax law provides that, unless otherwise excluded, gross income includes compensation for services, including fringe benefits.

A taxpayer may exclude the value of employer-provided meals and lodging from gross income if the meals and lodging are furnished “for the convenience of the employer” on the employer’s “business premises,” and, in the case of lodging, the employee is required to accept the lodging as a “condition of employment.”


Each of these terms has a precise meaning under the federal income taxation system.

For example, the term “convenience of the employer” has a special meaning for purposes of the meals and lodging exclusion that differs somewhat from its customary sense.

Although “convenience” suggests a subjective test within the discretion of a particular employer, under the tax law, “convenience” is determined under an objective “business necessity” test. Under the convenience of the employer standard, an exclusion for employer-provided meals or lodging is appropriate only if an objective evaluation of all pertinent facts and circumstances shows that the primary reason for providing the meals or lodging is a bona fide business necessity. Where this objective test is satisfied, the employee is entitled to exclude the meals or lodging from income even if an employment contract or law states that they are furnished as compensation.

IRC 119 Exclusion

This statutory exclusion is provided under §119 of the Internal Revenue Code, which is entitled “ Meals or Lodging Furnished for the Convenience of the Employer.” It applies to employees only and is not allowed to independent contractors or tenants. Taxpayers are bound by the form of the transactions into which they enter. The IRS asserts that meals and lodging furnished by a sole proprietorship to the proprietor or by a partnership to a partner who is actively involved in the partnership’s business do not qualify for the exclusion because there is no employment relationship between the business and its owner.

The IRS will not issue a ruling or a determination letter under §119 with regard to whether the value of meals or lodging is excludible from gross income by an employee who is a controlling shareholder of the employer.


Meals are considered provided for the “convenience of the employer” if they are furnished for a “substantial noncompensatory business reason.” This test is satisfied only if, based on an objective examination of all the circumstances, there is a primary business reason for furnishing the meals. For example, where meals are provided to employees who must be available during their meal period to attend to urgent business, the test is satisfied.


Lodging is considered to be furnished for the convenience of the employer if it is furnished for a primary noncompensatory business reason. Generally, this test is satisfied if it is established that the employee could not properly perform his duties without being furnished lodging.

Employer Business Premises

To qualify for exclusion from gross income, meals and lodging must also be furnished on the employer’s “business premises.” For example, in the case of the employees at a remote mining project, the lodging must be furnished on, or contiguous to, the work-site; a camp several miles away would not qualify. However, it is not necessary in all cases that the meals or lodging be furnished on property owned by the employer, such as an office building or plant. The business premises test is satisfied if the meals or lodging are furnished at a place where the employee performs a significant amount of services.

 Condition of Employment

In addition to the “convenience of the employer” and “business premises” tests, the exclusion for lodging also requires the employee to demonstrate that he is required to accept the lodging “as a condition of employment.” Generally, this test is satisfied if, as a practical matter, the employee must accept the lodging in order to properly perform his duties. This test is essentially the same as the convenience of the employer test. It is a fact intensive inquiry.

In kind only

Only meals and lodging that are furnished to the employee in kind qualify for the exclusion from gross income. Cash allowances or reimbursements for meals and lodging must be included in gross income by the employee.

Camps and Campus Lodging

Special rules are provided for employees who are furnished lodging in a camp in a foreign country and for the value of “qualified campus lodging” furnished to employees of certain educational institutions.

Employer Deductibility

Employer deductibility of meals and lodging provided to employees is limited under current law. Consult with us before deducting those expenses.


The discussion above outlines the general rules governing the excludability from gross income of the value of meals and lodging provided by an employer. Many of the rules in this area are complex and may also be affected by other tax laws. The correct tax treatment of a particular situation, however, can be made only after a careful examination of the facts and circumstances.

Categories: Federal Tax Articles, Income Tax Planning
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