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Northwestern Mutual files tax case amid OBBBA meal crackdown

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11 months ago

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Financial advisors and tax professionals may have lots to chew on with the business owners among their clients over the latest changes to the rules for business meals.

But shifting tax statutes about noshing on the job have been causing heartburn for far longer. 

For example, in a lawsuit filed earlier this month in the Milwaukee federal court, Northwestern Mutual demanded a tax refund of more than $23 million that the giant insurer and wealth management firm argued it and thousands of employees at two corporate offices should not have paid over four years for the company’s cafeterias. The complaint traced the company’s 110-year history of providing lunch and its several tax haggles over the years about the cafeterias with the IRS.

READ MORE: The big changes to HSAs and what they mean for planning

A new normal for food at work?

The lawsuit also reflects the complexity of the many tax incentives tied in some way to eating for business purposes. The guidelines giving companies and their workers an exemption from their gross income for the cost of onsite cafeterias is remaining in place, but the One Big Beautiful Bill Act will eliminate a separate deduction for the cost of those lunchrooms starting next year. 

The 2017 tax law had cut that deduction to 50% of the cost of onsite cafeterias. However, pandemic-era legislation restored it temporarily to 100% for two years. Unless they qualify for exceptions to the new law for restaurants and the fishing and oil industries, employers that provide workers with lunch or snacks will no longer get to deduct the cost in 2026. The law will cause large companies and employers like universities and hospitals to consider reducing or dropping their onsite meals, according to Michael Chuah, the principal attorney of Paxterra Law.

“It really is targeting very specific types of companies that have this type of benefit like an employee perk,” Chuah said. “When you work in those types of environments, it is certainly possible that you’re going to lose that 50% deduction.”

But, like wealthy clients, large companies like Northwestern, LPL Financial and Coca-Cola frequently get litigious with the IRS over their tax bills. Northwestern alleged the federal government owes the firm $23,047,094 for the repayment of income, payroll and Social Security taxes, plus interest, from the years 2014-2015 and 2018-2019 based on the corporate cafeterias in its downtown Milwaukee headquarters and suburban office in Franklin, Wisconsin.

“Northwestern Mutual is just one of the many targets of a decades-long bureaucratic hostility towards Section 119’s plain language broadly excluding from gross income the value of on-campus meals furnished for the ‘convenience of the employer,’ conceded by the

Treasury Department to encompass meals furnished for any ‘substantial noncompensatory business reason,'” the complaint said.

“While Congress has consistently expanded the scope of the exclusion through multiple amendments to Section 119 over the decades since its enactment, the IRS has repeatedly resisted these Congressional affirmations of the exclusion’s broad scope, thwarting the efforts of employers across the country to invoke the protections of Section 119(a)(1),” it continued. “In 1978, these bureaucratic usurpations became so problematic that Congress was compelled to impose a moratorium on the Treasury Department’s enactment of any new regulations seeking to interpret Section 119 out of the Code, which remained in effect for five years. Institutional memories have faded, however, as the IRS has resumed its systematic thwarting of the sweeping scope of Section 119, burdening thousands of employers and millions of rank-and-file employees across the country with taxes they simply do not owe.”

Representatives for the IRS said the agency doesn’t comment on pending lawsuits. Industry news outlet Insurance Business first reported the Sept. 2 lawsuit.

READ MORE: Caps, credits, contributions: Tax planning for parents under OBBBA

Food for thought

Northwestern, which generated a record $38 billion in revenue last year, gave out its first free lunch to employees in January 1915. The company received a ruling from the IRS in 1948 enabling it to exclude its on-campus meals from gross income, and it resolved a dispute with the agency 50 years later over the deduction for those expenses in 1991 and 1992, according to the complaint. 

However, the IRS challenged the company’s use of that exemption for 2014-15 and 2018-19 and “put forward inconsistent and erroneous justifications for disallowing those claims,” according to the lawsuit.

If Coca-Cola’s ongoing case over several billions of dollars in taxes for the years 2007 to 2009 is any indication, the Northwestern case could take several years to reach a ruling or a resolution. OBBBA didn’t alter that exemption from an employee’s gross income for the cafeteria, but the vast majority of companies or other employers with a cafeteria will no longer get the 50% deduction for the expense. That doesn’t mean they’ll be completely without any tax deductions for the cost of a business meal, though.

“For businesses, tax deductions for meals and entertainment expenses are governed by a maze of rules,” according to a guide by accounting firm RSM. “Allowable deductions vary based on the context and purpose of the meals or entertainment, thus making proper treatment of such expenses a challenging area for tax compliance. In addition, the rules have changed several times over the past decade. With additional changes effective in 2026, taking a fresh look at the deductibility of these expenses may be a good idea for many employers.”

The alterations to the deduction under Section 274 and related sections of the tax code should prompt employers and their advisors to consider shifting part of the cost of work meals and whether to limit them or document them more carefully, according to a blog by Harper & Company Certified Public Accountants. But “meals provided by restaurants or catering vendors in bona fide business transactions” can still get a deduction, it noted.

“Because it changes the game for how companies budget, plan employee perks, cafeterias, staff policies. If you didn’t know this was coming, you could face big tax surprises in 2026,” the blog said. “Also, employee benefits folks will need to communicate clearly. What used to be a ‘perk’ may now come with a cost or reduced tax benefit for the company.”

While entrepreneurs will need to huddle with their advisor or CPA to get into their specific situations, they can figure out the basic criteria for whether a meal might get the deduction. The new rules distinguish between daily meals in a cafeteria and a special occasion or a specific business activity, Chuah said. The former used to qualify for a deduction, but it will no longer get it next year. But the latter kind will still receive a deduction.

“It’s kind of reverse psychology,” he said. “When you read the rule as an employer, it’s a little bit funky, because you have to figure out what is qualifying.”

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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15 hours ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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6 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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