By Bobby Rich
The IRS and Treasury offered details in Notice 2021-25, on a provision of the COVID-19 relief package that Congress passed last December, which temporarily allows a 100 percent deduction for expenses for food or beverages from restaurants through the end of 2022.
Section 274(n) provides that a deduction for any expense for food or beverages generally is limited to 50 percent. The expense can’t be lavish or extravagant and the taxpayer (or an employee of the taxpayer) must be present at the furnishing of such food or beverages. Section 274(n)(2)(D) has been added which provides a temporary exception to the 50-percent limitation (i.e., allows 100% deduction) for expenses for food or beverages provided by a restaurant when paid or incurred after December 31, 2020, and before January 1, 2023.
For this purpose, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.
In addition, an employer may not treat as a restaurant, (1) any eating facility located on the business premises of the employer, or (2) any employer-operated eating facility treated as a de minimis fringe benefit.
Section 274 and the regulations provide several rules that may apply to the deduction of food or beverage expenses. Generally, deductions for expenses for entertainment, amusement, or recreation are not allowed.
If food or beverages provided at an entertainment activity 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 then the expenditure for the food or beverage may be deductible with limitations.
As a result of the new temporary deduction rules, it will be important to separate out those items that are 100% non-deductible (i.e., entertainment), 50% deductible (i.e., not purchased at a restaurant), and 100% deductible (i.e., purchased at a restaurant).
[button title=”CONTACT US” link=”https://www.bcscpa.com/contact-us/” target=”_blank” align=”center” icon=”” icon_position=”” color=”#18314f” font_color=”#ffffff” size=”2″ full_width=”” class=”” download=”” rel=”” onclick=””]