IRS Floats Updated Regs on Business Meals, Entertainment

The Internal Revenue Service on Monday issued proposed regulations on the business expense deduction for meals and entertainment following changes made by the 2017 tax overhaul.

The 2017 Tax Cuts and Jobs Act eliminated deductions for business entertainment expenses, explained Andrew Friedman, founder and principal at The Washington Update. “When Congress passed the Act, it was unclear whether the disallowance applied to business meal expenses,” he told ThinkAdvisor in a Monday email message.

In October 2018, the IRS issued a notice giving temporary guidance on this issue. The proposed rules would make those provisions permanent, Friedman says.

The notice, according to Friedman, “states that the cost of food purchased for business reasons without an entertainment component (for example a restaurant dinner or a buffet offered at a client seminar) is not subject to the entertainment disallowance. Thus, the costs of standalone meals are deductible, subject to the 50% reduction in meal expense deductions that remains in effect from prior law.”

The 2018 notice said that the cost of food purchased as part of or during an entertainment activity remained 50% deductible if (i) the food and beverages were purchased separately from the entertainment, or (2) the cost of the food and beverages was stated separately from the cost of the entertainment on bills or receipts.

The proposed reg update issued Monday is important for financial advisors, Friedman said.