April 16, 2020
NBAA has submitted comments to the IRS concerning a recent notice of proposed rulemaking (NPRM) outlining the tax treatment of business meals and entertainment activities. As part of the submission, NBAA has asked the IRS to reschedule a public hearing on these proposed regulations, citing constraints on resources and travel due to the novel coronavirus (COVID-19) pandemic.
The Tax Cuts and Jobs Act in 2018 introduced significant changes to the Internal Revenue Code, including to Section 274, with the elimination of deductions for business entertainment expenses. In 2018, the IRS issued Notice 2018-76 as interim guidance to clarify that business meals are generally not viewed as business entertainment, and therefore business meals can still be deducted if certain conditions are met.
The IRS has issued proposed regulations consistent with its prior interim guidance regarding business meals.
The IRS requested comments on the proposed regulations and has scheduled a public hearing for April 29 on the proposed regulations. NBAA submitted its comments to the IRS on the proposed regulations on April 13.
In its comments, NBAA asked the IRS to be consistent with its determination that business meals are not entertainment by classifying non-business meals as non-entertainment. Whether a non-business trip is classified as personal entertainment or personal non-entertainment should not depend on whether a meal is served.
The proposed regulations state that the exception to the deduction limitations for meals sold in bona fide transactions for adequate and full consideration applies to meals sold to employees. NBAA’s comments request that the corresponding exception from the entertainment disallowance on flights should also apply to flights sold to employees.
NBAA also seeks clarification from the IRS that the cost of transportation to a meal will not be included in the cost of the meal subject to the 50% disallowance generally applicable to meals.
The proposed regulations provide that the exception for meals provided as compensation does not apply if the employer improperly imputes the value of the meal to the employee or if the amount required to be imputed is zero. NBAA requests that the final regulations delete this rule or clarify that this rule does not apply to the entertainment disallowance generally.
NBAA has asked the IRS to reschedule the April 29 public hearing on these regulations until it is safe to hold the hearing and to allow interested parties adequate time to prepare comments under the circumstances.
“In the midst of a global pandemic, changes to the entertainment disallowance regulations are not the most important topic on most people’s agenda, but these changes are important and will be with us for many years to come,” said John Hoover, a partner at Holland and Knight LLP and chair of NBAA’s Tax Committee. “These changes deserve attention and the hearing should be postponed until the appropriate consideration can be given,” he added.