November 2018 JD Supra
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IRS Guidance on Business Meals is Transitional was published by JD Supra on 11/30/18.

The Tax Cut and Jobs Act (TCJA) amended Section 274 of the Internal Revenue Code (IRC) created a confusion for Taxpayers by disallowing a deduction for expenses with respect to “entertainment”, amusement, or recreation and failing to address the deductibility of expenses for business meals.  

Due to the lack of clarity, on April 2, 2018 the American Institute of CPAs (AICPA) wrote a letter to the US Treasury Department and the IRS Acting Chief Counsel requesting clarification related to the disallowance of entertainment, amusement, recreation and qualified transportation fringe expenses.  The AICPA stated that Taxpayers are required to “account for the changes in deductibility of these items and revise their accounting systems and expense and reimbursement policies and to comply with them on their 2018 tax returns and financial statements”.

On October 3, 2018, IRS released Notice 2018-76  providing transitional guidance regarding the deductibility of expenses for certain business meals under IRC Section 274.  

Under Notice 2018-76, Taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

  • The expense is an ordinary and necessary expense under Section 162(a) which allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
  • The expense is not lavish or extravagant under the circumstances;
  • The Taxpayer, or an employee of the Taxpayer, is present at the furnishing of the food or beverages;
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  • In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.  

Don’t be a victim of your own making

Taxpayers carry responsibility for having acceptable accounting practices and reimbursement policies in place despite a lack of clarity and interim guidance from IRS on the deduction of Business meals.    Consult a specialized Tax Representative to learn if you are in compliance.