IRS Provides Guidance on Business Meals for Entertainment

October 11, 2018

On October 3, 2018, the IRS issued Notice 2018-76 providing transitional guidance on the deductibility of business meals for entertainment under IRC section 274, following law changes in the Tax Cuts and Jobs Act (TCJA).

The TCJA eliminated a deduction for certain expenses considered entertainment, amusement, or recreation incurred after 2017, but did not address the deductibility of business meals.  While entertainment expenses remain generally non-deductible, Notice 2018-76 clarifies that business meals associated with entertainment remain 50% deductible, as long as the expense meets certain requirements:

  • It is ordinary and necessary in carrying on the trade or business
  • It is not lavish or extravagant
  • The taxpayer, or employee of the taxpayer, is present
  • It is provided to current or potential business customers, clients, consultants or similar business contacts

In addition, the notice stated that food and beverages must be purchased separately, or be separately stated, from the cost of the entertainment on a receipt or invoice to allow the amount of the food and beverage to be 50% deductible, assuming it meets the requirements listed above.

The IRS intends to issue proposed regulations further clarifying what constitutes deductible business meals, including expenses for food and beverages furnished primarily to employees on the employer's business premises, and non-deductible entertainment expenses.                                                  

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