The Treasury Department and the IRS have issued clarifying guidance that allows businesses a temporary 100% deduction for food or beverages from restaurants.

The rules regarding deductibility of meals and entertainment expenses have changed considerably in the past few years, beginning with new limitations imposed by the Tax Cuts and Jobs Act (TCJA) of 2017. Most recently, Congress temporarily reversed some of the changes with the Consolidated Appropriations Act, 2021. For 2021 and 2022 only, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner or an employee is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Defining “Restaurant”

Under the temporary provision, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate on-premises or off-premises consumption. However, the provision does not apply to businesses that primarily sell prepackaged food or beverages not for immediate consumption (grocery stores, convenience stores, specialty food stores, liquor stores, drug stores, newsstands, vending machines, or kiosks).

Employers also may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.

Questions about the deductibility of your business’s meals and entertainment expenses in 2020, 2021, and beyond? Download our meals and entertainment chart, which tracks the tax treatment of these expenses before and after the TCJA, as well as with the latest temporary tax relief. And as always, contact your CRI tax advisor with questions about your specific situation.