Points will be awarded for identifying the issues, the law that applies, and a significant percentage of the points awarded will be based on a thoughtful communication of your conclusions and ultimate advice. Please cite any legal or administrative support you utilize to reach conclusions.

You take your first job as an associate tax staff at a Madison firm in 2020. Because busy season is expected to produce long hours each day, the firm provides you with a meal supplement of $20 cash. You and your colleagues frequent a restaurant across the street from the office, using the meal supplement to cover the costs. You are also told that the Firm has a dedicated cafeteria on the same floor as your cubicle, which is currently only used for client and executive meetings. The managing partner of the tax department tells you that she wants to be sure the firm is treating the supplement correctly from a tax perspective, so she asks you to:

1. Determine and comment on whether you and your colleagues must include the supplement in gross income.
2. Comment on whether the firm would achieve a better tax result for everyone involved if they paid the restaurant directly.
3. Provide any planning comments you can think of that could mitigate any tax risk associated with either of the strategies outlined in A and B above.