Wall Street Journal: Silicon Valley's Tax-Free Free Lunch, by Mark Maremont:

Debate Emerges Over Whether Daily Fringe-Benefit Meals Are Taxable; Issue Is Now on IRS's Radar

When outsiders visit Silicon Valley, the first thing they often notice is the food: Cafeterias brimming with free gourmet meals and snacks offered to employees of Google, Facebook, and other technology firms.

But not all is as it seems in the buffet line. There is growing controversy among tax experts about how to treat these coveted freebies. The IRS also has been focusing on the topic, according to attorneys who practice in the area, examining whether the free food is a fringe benefit on which employees should pay additional tax.

Tax rules around fringe benefits are complex, but in general they categorize meals regularly provided by an employer as a taxable perk, similar to personal use of a company car. That leads several tax experts to wonder if some companies providing free food may be skirting the rules.

"I clearly think it ought to be taxable income," said Martin J. McMahon, Jr., a tax-law professor at the University of Florida, who argues that in most cases the meals are really part of a compensation package.

Other lawyers point to an exception that allows meals to remain untaxed if they are served for a "noncompensatory" reason for the "convenience of the employer." The exception generally has been applied to workers in remote locations or in professions where reasonable lunch breaks aren't feasible. But these lawyers argue that some technology firms could qualify, in part because free food encourages longer work hours and is a crucial part of Silicon Valley's collaborative culture. ...

Google has more than 120 cafes world-wide serving over 50,000 meals a day, according to its website, which says the aim is to foster collaboration and healthy eating. A spokeswoman declined to comment on the tax treatment of employee meals. Several former employees who recently left Google said the company didn't include the value of the meals in their paystubs or in W-2 tax statements. ...

"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."

Still, an IRS crackdown could raise hackles in the influential technology industry, and generate concerns that the federal government is interfering—for relative pocket change—with a culture that has made Silicon Valley a world leader. "There are real benefits for knowledge workers in having unplanned, face to face interaction," and free food helps facilitate that, said Victor Fleischer, a tax-law professor at the University of Colorado, who argues that aggressive enforcement of tax laws might be poor public policy in this case....

What would a food tax on Google's meals look like for the average employee? Assuming a fair-market value of between $8 and $10 per meal, a Googler chowing down two squares a day could get dinged for taxes on an extra $4,000 to $5,000 a year.