IRS issues guidance on changes to business expense deductions for meals and entertainment

On October 3, The Internal Revenue Service issued guidance on the business deduction for meals and entertainment following changes in the Tax Cuts and Jobs Act (TCJA).

While the act allows a deduction for expenses incurred during the tax year in carrying on trade or business, in 2017, the deduction of expenses related to entertainment, amusement or recreation was eliminated. However, the act does little to explain the tax treatment of business meals and there has been virtually no guidance from the IRS since the enactment of the TCJA until now.

Notice 2018-76 generally allows a Taxpayer to deduct 50% of an otherwise allowable business meal expense if:

  1. A)  The expense is an ordinary and necessary expense incurred in carrying on any trade or business
  2. B) The expense is not lavish or extravagant under the circumstances.
  3. C) The taxpayer (or an employee) is present at the provision of such food or beverages.
  4. D)  The food or beverages are provided to a current or potential client, consultant or similar business contact
  5. E) Food and beverages provided during the course of entertainment events will not be considered entertainment if they are purchased separately from the event.

The IRS and Treasury expect to publish regulations clarifying when meal expenses are deductible and what constitutes entertainment. For more information regarding the current guidance, including examples, please see IRS Notice 2018-76.