Breaking News

IRS clarifies which meals qualify for non permanent 100% expense deduction

The IRS unveiled direction on Thursday outlining when the temporary 100% deduction for restaurant foods is available and when the 50% limitation on the deduction for food stuff and beverages proceeds to apply for Sec. 274 reasons (Detect 2021-25).

Beneath Sec. 274(n)(1), a deduction for any cost for food or beverages is typically limited to 50% of the amount that would in any other case be deductible. Nonetheless, the Consolidated Appropriations Act, 2021, P.L. 116-260, enacted a short term exception to the limitation for amounts compensated or incurred following Dec. 31, 2020, and before Jan. 1, 2023, for food or drinks presented by a restaurant (Sec. 274(n)(2)(D)). This short-term 100% deduction was intended to support dining establishments, quite a few of which have been tricky-hit by the COVID-19 pandemic.

To supply certainty to taxpayers, the IRS steerage describes when the momentary 100% deduction applies and when the 50% limitation carries on to apply.

Less than the discover, the expression “restaurant” signifies a organization that prepares and sells foods or drinks to retail customers for rapid usage, no matter of no matter if the foods or drinks are eaten on the business’s premises. A cafe does not include a enterprise that principally sells prepackaged foodstuff or beverages not for fast use, such as a grocery retail outlet specialty meals keep beer, wine, or liquor shop drug retail store comfort keep newsstand or a vending device or kiosk. The 50% limitation continues to apply to the total of any deduction or else allowable to the taxpayer for any price compensated or incurred for foods or beverages acquired from those types of firms (except a further exception in Sec. 274(n)(2) applies).

The detect defined that an employer may well not treat as a cafe for Sec. 274(n)(2)(D) functions:

  • Any ingesting facility found on the employer’s company premises and used in furnishing meals excluded from an employee’s gross money under Sec. 119 or
  • Any employer-operated feeding on facility addressed as a de minimis fringe under Sec. 132(e)(2), even if that ingesting facility is operated by a third social gathering less than Regs. Sec. 1.132-7(a)(3).

The observe is helpful for quantities paid out or incurred right after Dec. 31, 2020, and prior to Jan. 1, 2023.

Sally P. Schreiber, J.D., ([email protected]) is a JofA senior editor.