IRS won’t appeal ruling on casino meals tax

David Strow

Thursday, July 22, 1999 | 10:54 a.m.

The Internal Revenue Service has surrendered its fight to impose a meals tax on casino employees, ending the agency's three-year legal battle with the gaming industry.

The IRS said Wednesday it will not appeal a May 12 federal appeals court decision to the Supreme Court. As part of that decision, the IRS withdrew plans to distribute training materials on the meals tax to the gaming industry.

"The Service will not attempt to substitute its judgment for the business decisions of an employer as to what specific business policies and practices are best suited to addressing the employer's business concerns," the IRS statement said.

Until Wednesday, the IRS had contended that free meals provided to casino employees on their shift constituted taxable income. The industry said that would increase employees' withholding taxes by $10 per two-week period and employer taxes by $90 per year per employee.

The original IRS position also hurt casino companies by barring them from deducting the costs of employee meals from taxable income, therefore raising their corporate taxes.

"This decision is a total victory for casino employees -- they are the real winners," Sen. Richard Bryan, D-Nev., said in a statement. "I have met with the IRS commissioner on this issue several times and it is gratifying to see that he has finally agreed with my contention that the IRS should no longer pursue this issue."

In September 1997, the U.S. Tax Court ruled in favor of the IRS position in a tax appeal brought by Boyd Gaming Corp., a decision that set a precedent for the entire gaming industry. Boyd appealed to the 9th U.S. Circuit Court of Appeals in San Francisco. The 9th Circuit overturned the Tax Court decision in May.

Providing employees free meals while on the job is a widespread practice in the gaming industry. The meals are necessary, the industry argues, because employees don't have sufficient time to leave their properties on breaks, buy a meal and return in time for their shift.

Employees involved with games and money-handling must follow check-out procedures when leaving, making it impractical for them to leave the property for lunch, the industry said.