The IRS has provided guidance related to the temporary 100% deduction for business meals provided by a restaurant. The Consolidated Appropriations Act, 2021 (the Act) temporarily increased the deduction from 50% to 100% for a business’s restaurant food and beverage expenses for 2021 and 2022. All other food and beverage expenses are still subject to the 50% deduction limitation unless some other exception applies. The content of this article is curated by Holly Hobson Travis, C.P.A., Senior Content Management Analyst, Wolters Kluwer.
Restaurants Defined
According to the IRS’s guidance, a restaurant is a business that prepares and sells food or beverages to retail customers for immediate consumption. Note that the food and beverages do not need to be consumed on the premises for the 100 percent deduction to apply.
Restaurants are not businesses that predominantly sell pre-packaged food or beverages that are intended for later consumption. Food or beverages purchased from such businesses are still subject to the 50% deduction limitation. Examples of businesses that are not restaurants include grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines, or kiosks.
Restaurants are also not eating facilities located at an employer’s business that provide meals that are excluded from the employees’ gross income or are considered a de minimis fringe. This also applies to eating facilities on the employer’s premises that are operated by a third party with regards to Reg. §1.132-7(a)(3).
Background
IRC §274 generally limits or disallows deductions for certain meal and entertainment expenses that otherwise would be allowable. IRC §274(a)(1) generally disallows deductions for expenses for entertainment, amusement, or recreation. The regulations provide that the disallowance under section IRC 274(a)(1) does not apply to food or beverages provided at an entertainment activity if the food or beverages are separately purchased from the entertainment activity or the cost of the food or beverages is separately stated from the cost of the entertainment in an invoice, bill, or receipt.
IRC §274(k) generally provides that no deduction is allowed for the expense of any food or beverage unless:
Such expense is not lavish or extravagant under the circumstances; and
The taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.
IRC §274 provides additional rules that may apply to the deduction of food or beverage expenses, depending on the circumstances.
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