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Regulations §1.132-5(m)(1) provides that if a bona fide business-oriented security concern exists, and an overall security program exists, then the employee may exclude the excess of the value of the

transportation provided by the employer over the amount that the employee would have paid for the same mode of transportation absent the bona fide security concern. With respect to air transportation, the phrase “same mode of transportation” means comparable air transportation.

A bona fide business-oriented security concern exists only if the facts and circumstances establish a specific basis for concern regarding the safety of the executive. A generalized concern for the executive’s safety will not trigger application of the security exclusion. The employer must demonstrate the existence of a bona fide security concern. A bona fide security concern exists if the facts and circumstances demonstrate a specific basis for concern regarding the safety of the employee. Examples of specific bases for a bona fide security concern include a specific threat to harm the employee or a recent history of violent terrorist activity in the geographic area in which the transportation is provided.

An overall security program must be established. In order to establish the existence of an overall security program, the employer must generally establish that security is provided to the employee on a 24-hour basis. However, an overall security program is deemed to exist if the following conditions are satisfied:

 A security study is performed with respect to the employer and the employee (or a similarly situated employee of the employer) by an independent security consultant;

 The security study is based on an objective assessment of all facts and circumstances;

 The recommendation of the security study is that an overall security program is not necessary and the recommendation is reasonable under the circumstances; and

 The employer applies the specific security recommendations contained in the security study to the employee on a consistent basis.

An independent security study could conclude, for example, that security during air travel is necessary, but security on a 24-hour basis is unnecessary. The expenses incurred for security services will normally be deducted under “Other Deductions.” The IRS directs its examining agents to review Forms W-2/1099 and employment agreements as they may provide information related to security services.

The IRS has found upon examination that homes of executives have been fortified with special rooms or other security devices. It is important to evaluate the level of security afforded top executives and their families to determine that security studies are being followed.

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V. Employer-provided meals

An employer can exclude any occasional meal or meal money it provides to an employee if it has so little value (taking into account how frequently the employer provides meals to its employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items:

 Coffee, doughnuts, or soft drinks.

 Occasional meals or meal money provided to enable an employee to work overtime.

However, the exclusion does not apply to meal money figured on the basis of hours worked.

 Occasional parties or picnics for employees and their guests.

This exclusion also applies to meals the employer provides at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. For this purpose, an employer’s revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages.

If food or beverages an employer furnishes to employees qualify as a de minimis benefit, the employer can deduct their full cost. The 50% limit on deductions for the cost of meals does not apply. For this exclusion, an employer should treat any recipient of a de minimis meal as an employee.

An employer-operated eating facility for employees is an eating facility that meets all the following conditions:

 The employer owns or leases the facility.

 The employer operates the facility. The employer is considered to operate the eating facility if it has a contract with another to operate it.

 The facility is on or near the employer’s business premises.

 The employer provides meals (food, drinks, and related services) at the facility during, or immediately before or after, the employee's workday.

An employer can generally exclude the value of de minimis meals it provides to an employee from the employee's wages. The employer cannot exclude from the wages of a highly compensated employee the value of a meal provided at an employer-operated eating facility that is not available on the same terms to one of the following groups:

 All of the employees; or

 A group of employees defined under a reasonable classification the employer sets up that does not favor highly compensated employees.

For this exclusion, a highly compensated employee for 2015 is an employee who meets either of the following tests:

1. The employee was a 5% owner at any time during the year or the preceding year; or 2. The employee received more than $115,000 in pay for the preceding year.

The employer can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year.

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The employer can exclude the value of meals it furnishes to an employee from the employee's wages if they meet the following tests:

 They are furnished on the employer’s business premises.

 They are furnished for the employer’s convenience.

This exclusion does not apply if the employer allows its employee to choose to receive additional pay instead of meals.

Generally, for this exclusion, the employee's place of work is its business premises. Whether an employer furnishes meals for its convenience as an employer depends on all the facts and circumstances. An employer furnishes the meals to its employee for its convenience if it does this for a substantial business reason other than to provide the employee with additional pay. This is true even if a law or an

employment contract provides that the meals are furnished as pay. However, a written statement that the meals are furnished for the employer’s convenience is not sufficient.

If more than half of an employer’s employees who are furnished meals on its business premises are furnished the meals for the employer’s convenience, the employer can treat all meals it furnishes to employees on its business premises as furnished for its convenience.

Meals an employer furnishes to a restaurant or other food service employee during, or immediately before or after, the employee's working hours are furnished for the employer’s convenience. For example, if a waitress works through the breakfast and lunch periods, an employer can exclude from her wages the value of the breakfast and lunch furnished to her in the employer’s restaurant for each day she works.

Meals an employer furnishes during working hours are furnished for an employer’s convenience if the employee could not otherwise eat proper meals within a reasonable period of time. For example, meals can qualify for this treatment if there are insufficient eating facilities near the place of employment.

Meals an employer furnishes to an employee immediately after working hours are furnished for an

employer’s convenience if the employer would have furnished them during working hours for a substantial nonpay business reason but, because of the work duties, they were not eaten during working hours.

Meals an employer furnishes to promote goodwill, boost morale, or attract prospective employees are not considered furnished for the employer’s convenience. Such meals may also be able to be excluded as de minimis meals.

An employer generally cannot exclude from an employee's wages the value of meals the employer furnishes on a day when the employee is not working. However, an employer can exclude these meals if they are furnished with lodging that is excluded from the employee's wages as earlier discussed.

The fact that an employer charges for the meals and that the employees may accept or decline the meals is not taken into account in determining whether or not meals are furnished for the employer’s

convenience.

For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation.

A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2%

of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as a

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partnership would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder.