Restrictions on availability of expanded 100% of meals deduction.

• Author: Buchbinder, Elizabeth N.

A recent Tax Court decision could make it difficult for employers to take advantage of the expanded availability of the 100% deduction for meals provided to employees by the Taxpayer Relief Act of 1997 (TRA '97).

Prior to enactment of the new provision, Sec. 274(n) allowed a deduction for 100% of the cost of food or beverages provided at an employer eating facility if the food or beverages qualified as a de minimis fringe benefit under Sec. 132(e)(2). To qualify as a de minimis fringe, the meal had to be furnished in an eating facility on the employer's business premises and the facility's revenue normally had to equal or exceed its operating cost.

The TRA '97 codified a rule in Boyd Gaming Corp., 106 TC 343 (1996) (Boyd I), that the employer may receive a full deduction for the cost of meals even if the eating facility revenues do not exceed its costs, so long as the employer reasonably determines that the cost is excludible from employee gross income under Sec. 119. In Boyd Gaming Corp., TC Memo 1997-445 (Boyd II), the Tax Court applied a nine-factor test to deny Boyd (which owned several Las Vegas casinos and provided free meals to its employees) a full deduction for the cost of business meals. The court reasoned that the meals were not provided to substantially all the employees for Boyd's convenience under Sec. 119; thus, the deductions were limited to 80% under Sec. 274(n).

The court used nine factors in determining whether the meals were furnished for a substantially noncompensatory business reason:

1. When the meals were provided.

2. Whether the employer required the employee to be available in case of emergency.

3. Whether the meal period was too short for the employee to eat elsewhere.

4. Whether eating...