That's a non-compliant plan, I'm pretty sure. You can't just expense an all-alcohol trip to a bar because you're stressed. You're not personally in violation but the organization is violating the IRS rules for letting you do it. They'll get away with it usually, and if a tax auditor sees it there'll be modest fines unless it was systematic approach to dodge taxes.

As for "why" it's a personal benefit, that's just how we've decided as a society. We want people to pay tax on personal income irrespective of how it's spent and we want to allow businesses to pay tax on net income because to create economic value you sometimes have to spend a lot on inputs.

So we have rules for what income is taxed on gross and what income is taxed on net. For the most part, personal income is taxed on gross and business income is taxed on net. And then, to compensate for the gross taxation, a standard income deduction is offered.

Because of this difference between the way personal and business income are taxed, the classification of things into one and the other matters. A logical way for a company to restructure things given just the naïve implementation is to transfer all payment to payment in kind: the company buys your groceries, pays your rent, and so on. You love this, your taxes are lower and you still get the same benefit of the money. The IRS, therefore, qualifies what is personal and what is business. Your company cannot buy you your groceries and pretend they aren't paying you.

However, it is true that the company sometimes sends you on assignment where your costs would be higher than if you were to stay at home. In these cases, it is reasonable for them to pay for your expenses. Well, ideally, your company then always sends you on a one-day trip every month but sends you back with a Costco-haul. This would let them pay you more (you both win, the tax man[0] loses) so long as they appropriately redirect pay into in-kind. So the IRS says "you can either be careful or you can have a fixed amount for travel that works for these categories"[1].

So, "why" is it a personal benefit? It's because we have taxation, and because business and personal income are differently taxed, and because business spending has to therefore be defined. That's the broad strokes of it though there's nuance, and a lot of "well, actually" to get it out but that's the picture for the most part.

In the end, the lines have to be drawn somewhere. If you eat the office catering that's not a taxable benefit. But if you were to drive home to pick up and eat the Doordashed sandwich from the same place there and return to work, you would have eaten identical food and perhaps done identical work, but the treatment is different. Such is life at scale.

0: That's us, this society. We collectively are the tax man.

1: https://www.irs.gov/pub/irs-drop/n-25-54.pdf

Of course it is a personal benefit, you are literally benefitting by not spending your own post-tax dollars for something that goes into your stomach. However, there are legal rules that allow categorizing certain such expenses and amounts as a cost of doing business even though the manifest benefit is purely “personal”.

These rules have tightened up since the days of company cars and company houses “expensing” employee cars and houses as a tax advantaged form of compensation. If you try to do that now, that all shows up as “compensation” which is taxed. If you look at say Mark Zuckerberg’s yearly “salary” you will see that it is almost entirely non-monetary compensation for bodyguard services and “paying” for Mark Zuckerberg, the CEO, using the plane of Mark Zuckerberg, the person, and paying personal income taxes on that “compensation” even though Mark Zuckerberg was not paid any dollars (for that compensation).

The allocations you are provided and the manner in which you are allowed to spend them are generally considered “safe” from a accounting perspective. There is usually wiggle room above them if you are willing to more thoroughly document or finagle them, but that is extra accounting department cost to do things beyond the safe, well-trod legal path even if it is actually okay at the end of the day.

It actually has more to do with how you would implement the controls. What can and cannot be allowed is complicated and requires someone to read and understand the regulations. That is probably more than you can expect from the person processing the actual returns. Normally a person who can understand the rules deseminates it into much simpler company policy, partly by discarding edge cases and things they don't think will apply to the company, and trains the actual operator on the common cases. This edge case was outside of that persons (or systems) normal parameters for operation, so it for rejected.

It is not that Finance rolled over, it is that it got escalated to a person who could understand the rules better, who advised the operator how to apply the rules in this case.