Gamers, congressmen hammer on IRS meal tax rules

The Internal Revenue service is making it difficult for hotel-casinos to qualify for tax-exempt status in giving workers free meals, the gaming industry and Nevada congressmen charged Thursday.

The agency this week released training guidelines for auditors on taxing free meals in the hospitality industry.

It also offered to settle back taxes with companies that don't qualify for the meals tax exemption under the recently passed IRS reform bill.

But Nevada congressmen Jim Gibbons and John Ensign said this week the regulations are an attempt to avoid the intent of the law.

Meanwhile, the gaming industry's chief lobbyist in Washington issued a statement saying he had "serious concerns" about the IRS proposal.

Hotel-casinos have long granted free meals to workers, saying it is necessary because it would be difficult for them to leave the property to get a meal and return to work within their break period. The hotel-casinos have also been able to write off the free meals for tax purposes.

In an Aug. 5 letter to IRS commissioner Charles Rossotti, Reps. Gibbons and Ensign said the IRS training manuals "might represent an attempt to circumvent the Workers Meals Fairness Act."

Gibbons said the training materials have provisions that would burden workers and companies with proving they qualify for the tax-exempt free meals.

"I think, clearly, the IRS is making an attempt to go around what the intent of Congress was," Gibbons said. "The IRS has turned the burden toward the individual working Nevadan."

In a written statement, American Gaming Association President Frank Fahrenkopf Jr. said that organization also had concerns about the proposal.

"We are particularly interested in ensuring that both the letter and the spirit of the amended tax laws be followed and that the process for qualifying for tax-free meals be streamlined compared to the draft proposal earlier this week," Fahrenkopf said.

Under the IRS reform bill, hotel-casinos where 50 percent of the employees would qualify for free meals under the old law would be exempt from the tax. Food service workers, those who cannot obtain a meal in a reasonable amount of time and workers on emergency call qualified under the old law.

The proposed guidelines say such a determination "must be made on an employee-by-employee basis and based on an analysis of each meal provided to each employee. Furthermore, the determination must be made separately for each of the employer's business premises."

"What they're trying to do is send a signal to the industry that they are going to make it difficult to qualify," Ensign said.

Betty Wilson, vice president of taxation at Caesars World and head of the AGA task force on taxation, said making the determination of who qualifies under provisions issued by the IRS would be "an administrative nightmare."

"I don't know anyone that has the resources to do it or the computer system to do it," Wilson said.

A U.S. Tax court case with Boyd Gaming Corp. resulted in a ruling that the meals were income and should be taxed, paving the way for the IRS to start taxing the meals. For workers, being taxed on the meals could result in a pay cut estimated at $300 a year.

That in combination with concerns companies could no longer write off the meals led the gaming industry to team with the Culinary Union to fight the tax, an effort that culminated in the Workers Fairness Act being attached to the IRS reform law.

"If they start taxing, we'll be in a battle again," said Culinary Union Secretary-Treasurer Jim Arnold.

The IRS is accepting comments on the regulations through September and will use that input in fine-tuning the guidelines.

IRS spokeswoman Jodi Patterson said the agency is taking public comment to listen to concerns like those expressed by Nevada congressmen and the gaming industry.

"They're (the guidelines) not finalized," Patterson said. "We're soliciting public comments and all comments will be considered."

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