Pig Pen Case Summary

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Pages: 2

Facts
Ben is a waiter at the Pig Pen. His employer provides a 60 percent discount for any food that the employees buy and consume on the premises. Ben’s total spent during working days was $1,666.67 with a value discount of $2,500 during working days. During the off days that he stopped during mealtimes he spent $1,000 with a value discount of $1,500.
Issue(s)
How much gross income must ben recognize this year with respect to the discount plan?
Conclusions
The gross income Ben must recognize is the portion of $1,500 discount value during his off days in excess of the gross profit percentage of the regular price offered to customers. The portion that is within the gross profit percentage will be excluded from income, as well as the $1,666.67 spent during working days.
Analysis and summary
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IRC §119(b)(1) provides that the fact that ben receives the food at a discounted price and the fact that that ben may accept or decline such meals is not an impediment as to whether he applies for this section. Based on, IRC §119(a) meals are excludable from the employee’s gross income if they are provided for the convenience of the employer, only if the meals are offered on the business premises of the employer. Ben buys and consumes the food on his employer premises.
Reg §1.119-1(a)(2)(ii)(d) states that a meal provided to a restaurant employee in which the employee works will be regarded as furnished for a substantial noncompensatory business reason of the employer, irrespective of whether the meal is furnished during, immediately before, or immediately after the working hours of the employee. Thus, Ben meets the requirements to exclude the $1,666.67 spent during working days from his gross income. To determine whether Ben may discount a portion of the discount associated to his off days from his gross income, research must be done in other section of the