Nov 9, 2018

The 2017 Tax Cuts and Jobs Act included amendments to § 274 of the Internal Revenue Code, which addresses the deductibility of expenses for business meals and entertainment.

The act, effective Jan. 1, 2018, repealed tax deductions for entertainment expenses directly related or associated with the conduct of business. This change raised questions about the tax treatment of business meals, which had been deductible, subject to a 50 percent limitation. In addition, the deductibility of transportation to and from a business meal was also called into question.

“This created confusion for businesses and tax professionals,” said John Hoover, a partner at Holland & Knight LLP and vice chair of NBAA’s Tax Committee. “If taking a client out to dinner was viewed as entertainment, those expenses would not have been deductible under the act. Furthermore, the cost of the executive’s flight to a meeting over a meal could have been in jeopardy.”

The IRS recently issued Notice 2018-76 that implicitly concludes that business meals are generally non-entertainment expenses and can be deductible, subject to the 50 percent limitation, if certain requirements are met.

View the notice.

Hoover explained that among the five requirements are: the meal must be an ordinary and necessary expense; the taxpayer (or its employee) and a business associate must be in attendance; and if food is provided at or during an entertainment event (such as a basketball game) the food can still be deductible if the cost of the meal is accounted for separately from the entertainment expenses.

NBAA submitted comments to the IRS supporting the agency’s position to classify business meals as non-entertainment and requesting guidance confirming that while the cost of the food itself is only 50 percent deductible under § 274(n), travel costs incurred on business trips where food is provided should continue to be fully deductible.

“The implicit conclusion in the notice that meals are not an entertainment activity is supported by the regulations which contrast routine personal activities, like eating meals, with activities ordinarily engaged in for entertainment, amusement, or recreation,” said Hoover. “We have asked the IRS to more clearly state its conclusion that meals are not entertainment, consistent with the regulations. This clarification is important to support the deductibility of travel to meet with a business associate over a meal.”

“NBAA continues to closely monitor the impact of the Tax Cuts and Jobs Act on business aviation and will be directly involved as the IRS and Treasury Department continue to issue guidance,” added Scott O’Brien, NBAA’s senior director, government affairs.

View NBAA’s comments to the IRS.