Business Meals: Transitional Guidance on Deducting Business Meals.

• Author: Josephs, Stuart R.
• Position: Fed Tax

Notice 2018-76 (IRB 2018-42, Oct. 15. 2018) provides transitional guidance on deducting business meals expenses under IRC See. 274, as amended by the 2017 Tax Cuts and Jobs Act (the Act), P.L. 115-97, enacted Dec. 22,2017.

As amended, Sec. 274 disallows deductions for entertainment, amusement or recreation expenses. However, the Act did not specifically address deductions for business meal expenses.

Notice 2018-76 also announces that the Treasury Department and the IRS intend to publish proposed regulations under Sec. 274, clarifying when business meal expenses arc nondeductible entertainment expenses and when they are 50 percent deductible expenses.

Until the proposed regulations are effective, taxpayers may rely on Notice 2018-76 for the treatment under Sec. 274 for business meal expenses.

Interim Guidance for Business Meals Since the Act did not change the definition of entertainment under Sec. 274(a)(1), the regulations under Sec. 274(a)(1) that define entertainment continue to apply.

But the Act did not address the circumstances in which the pro\ision of meals and beverages might constitute entertainment. However, the Act's legislative history clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trades or businesses. (See the 2017 Conference Report, H.R. 115-466, at 407. Also see the March/Aprril 2018 California CPA, Page 24.)

Under Notice 2018-76, taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

1. The expense is ordinary and necessary under Sec. 162(a), paid or incurred during the tax year, in carrying on any trade or business;

2. The expense is not lavish or extravagant under the circumstances;

3. The taxpayer, or the taxpayer's employee, is present when the food or beverages are furnished;

4. The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and

5. For food and beverages provided during an entertainment, the food and beverages are purchased separately from the entertainment or the cost of the food and beverages is stated separately from the entertainment's cost on one or more bills, invoices or receipts.

The entertainment disallowance rule may not be circumvented through inflating food and beverages charges.

Examples

For each example, assume food and beverage expenses are ordinary and necessary under Sec. 162(a), paid or incurred during the...