Unentertaining Business Meals and Entertaining Employee Meetings

167 Tax Notes Federal 231, 2020

7 Pages Posted: 4 Jun 2020

Date Written: April 13, 2020

Abstract

The Tax Cuts and Jobs Act generally eliminated the deductibility of any business-related entertainment expenses. Although “entertainment” has historically included meals with clients and for other business development purposes, Treasury and the IRS concluded in late 2018 that business-related meals are no longer considered entertainment and can continue to be 50% deductible as under prior law.

In a world in which the meal portion of business entertainment is 50% deductible and the rest is 0% deductible, Treasury and the IRS have issued guidance to reduce the incentive to inflate the meal expenses.

Conversely, there are some types of entertainment expenses that are still 100% deductible, but the meal portion of those expenses may only be 50% deductible. A taxpayer may want to treat some expenses as solely entertainment and to deflate the meal portion of those expenses in order to deduct 100% of them. Absent technical corrections to the statute to the contrary, some taxpayers may find it preferable to enhance their employee and director meetings with tasteful entertainment to maximize their tax deductions.

Keywords: 274, 274(e)(5), Entertainment, TCJA, Business Meals, Substantiation, Taco Bell, Franchise Wars

Suggested Citation

Zhang, Libin, Unentertaining Business Meals and Entertaining Employee Meetings (April 13, 2020). 167 Tax Notes Federal 231, 2020, Available at SSRN: https://ssrn.com/abstract=3594658

Libin Zhang (Contact Author)

Fried Frank ( email )

One New York Plaza
New York, NY NY 10004
United States

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