IRS Issues Guidance on Income Tax Deduction for Meals and Entertainment Expenses

The IRS has recently issued guidance on for tax deductible meals.  Please see guidance below.  Contact our office with any questions.

The IRS has issued interim guidance on the deductibility of expenses for certain business meals under Code Sec. 274 [Notice 2018-76, 2018-42 IRB; IR 2018-195, 10/3/18].

Code Sec. 274 was amended by the Tax Cuts and Jobs Act (TCJA), which was enacted on Dec. 22, 2017. Code Sec. 274 now generally disallows an income tax deduction for expenses related to entertainment, amusement, or recreation. However, the TCJA did not specifically address the deductibility of expenses for business meals.

The interim guidance says that taxpayers may continue to claim an income tax deduction equal to 50% of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary expense under Code Sec. 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 guidance includes examples to support the concepts.

The Treasury Department and the IRS intend to publish proposed regulations under Code Sec. 274 clarifying when business meal expenses are nondeductible entertainment expenses and when they are 50 percent deductible expenses. Until the proposed regulations are effective, taxpayers may rely on the guidance in Notice 2018-76 for the tax treatment under Code Sec. 274 of expenses for certain business meals.

Document Title:IRS Issues Guidance on Income Tax Deduction for Meals and Entertainment Expenses (10/04/2018)
Checkpoint Source:Payroll Updates

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