IRS Issues Guidance on Food and Entertainment Deductions

By:
Chris Gaetano
Published Date:
Oct 3, 2018
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While the Tax Cuts and Jobs Act effectively eliminated most business tax deductions for entertainment, the IRS has released new guidance outlining the cases in which deductions for business meals could still apply. 

The notice, 2018-76, states that, generally, the law now disallows deductions for expenses related to entertainment, amusement or recreation, but it also says, "the Act does not specifically address the deductibility of expenses for business meals." Because of this absence, the IRS guidance says that taxpayers can use the previous rules for deducting meals: 

"Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. Food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event," said the IRS. 

Specifically, taxpayers may deduct the cost of a meal if: 

1. The expense is an ordinary and necessary expense under § 162(a) paid or incurred during the taxable year in carrying on any trade or business;
2. The expense is not lavish or extravagant under the circumstances;
3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
4. The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and
5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages. 
The Treasury Department and the IRS plan to issue proposed regulations outlining in greater detail what meals are and are not deductible, but until those proposed regulations are effective, the IRS said taxpayers may rely on the guidance in this notice for the treatment under § 274 of expenses for certain business meals.
 
 

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