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IRS Issues Surprise Guidance on Meals

In a somewhat surprising announcement yesterday, the IRS gave the green light for deducting 50% of the cost of food and beverages provided during an entertainment activity.

Many commentators (including ourselves) had speculated that all costs associated with an entertainment activity would be nondeductible starting in 2018 as a result of the changes in the Tax Cuts & Jobs Act.

The New Guidance on Meals

The big factor appears to be whether the cost for food and beverages is split out separately from the cost of the entertainment. The IRS provided three examples to illustrate.
  • One was taking a customer to a baseball game, where the cost of the tickets was separate from the purchase of hot dogs and drinks. The tickets are nondeductible, but the food and beverage is subject to a 50% deduction.
  • Another example was taking a customer to a basketball game and watching the game from a suite, where the food and beverages are included in the cost of the event. In that situation, the entire cost is nondeductible since costs for food and beverage were not split out separately.
  • The third example was the same as attending the basketball game in a suite, except the cost of food and beverage was split out on the ticket or invoice. This allowed the taxpayer to deduct 50% of the food and beverage.
With this new guidance, you may want to review your expenses for 2018 and make appropriate adjustments before tax return time.

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