IRS Notice 2018-76-Five Conditions for Claiming Meal Deduction

There is good news for business onwers- IRS has just issued Notice 2018-76 that pertains to deductions for meals and entertainment. As you know , under the pre-TCJA law, businesses could deduct upto 50 percent of the amount of the entertainment expense under Code Section 274(n)(1) if the said entertainment expense was directly related to taxpayer’s trade or business. The expense on food & beverages was all part of “Entertainment Expenses”.However, The Tax Cut & Jobs Act (TCJA ) did not define  circumstances under which food and beverages might constitute entertainment . Thus , expense on meals  is not deductible, even if  that was indeed incurred entirely for the business purpose 

The IRS has now issued a transitional guidance in Notice 2018-76 concerning the business expense deductions for meals and entertainment . It is proposed that the regulation for allowance as per Notice 2018-76 will be published under Section 274 . Taxpayers can claim deduction of 50% of food and beverage expense under certain conditions until the proposed regulations become effective

5 Conditions for Deduction of Meal Expense

You may deduct 50 percent of food and beverage expense if following conditions are satisfied:

  1. The expense is ordinary and  incurred in carrying on a trade or business;
  2. The expense is not extravagant;
  3. The taxpayer or an employee of the taxpayer is present at the furnishing of the food and beverage;
  4. The food and beverage are provided to current or potential customers, clients, consultants or similar business contacts; and
  5. In the case of food and beverage provided during or at an entertainment activity or event, there should be sepration of cost . That is ,  the food and beverages are billed separately from the entertainment .

 

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