The IRS has issued a notice 2018-76 to clarify the deductibility of business meals and entertainment in light of changes enacted last year as part of the Tax Cuts and Jobs Act (TCJA).
The IRS explains that 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 meal meets certain other qualifications.
The notice breaks out five specific tests that must be met in order for these expenses to be 50 percent deductible:
- The expense is an ordinary and necessary expense paid or incurred during the taxable year in the course of carrying on a trade or business;
- The expense is not lavish or extravagant under the circumstances;
- The taxpayer, or an employee of the taxpayer, is present at the meal;
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
- In the case of a meal provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment. Alternately, the cost of the food and beverages can be stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
The guidance includes three examples highlighting deductibility and nondeductibility of various food and beverages purchased while attending sports events. It also states that the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.
Comments on this notice are requested by December 2, 2018. The Treasury and IRS will then issue proposed regulations.
Please contact us with questions about this or other IRS guidance. Check back for more information on IRS guidance and regulations as they become available.