One of your corporate clients has approached you about whether or not its employees are required to include certain benefits provided by the corporation in their income. In particular, the corporation has inquired whether the following benefits provided by the corporation to employees would be included in an employee's taxable income:

I. The employer would like to provide free meals to each employee during the workday. The employer would provide the employees $10 each day that they could use to buy lunch in the employer's cafeteria or, if they chose, an outside restaurant.

II. The employer, which is a university, would like to provide a tuition benefit to its employees and their families. Specifically, an employee and his or her immediate family (i.e., spouse and children) would be entitled to take undergraduate classes at no charge. Class size, however, is limited, and the university routinely turns students away. Employees and their families would not be subject to this limitation.

Explain to your client the general rules surrounding whether an employee must include benefits provided by the employer in income. Then, for the two proposed benefits mentioned above, explain whether the employee would have to include the amount in income or what provision or exception might apply to make the proposed benefit nontaxable. If the employer would have to make changes to the proposed benefit to render it nontaxable, explain what changes would have to be made. Finally, explain what the resulting benefit would be to the employee and how much, if any, of the benefit the employee could exclude from income. Make sure to detail any significant exceptions or rules that apply to the benefit exception at issue