Insights

Employee or Independent Contractor Status Clarified Further by The U.S. Department of Labor

Corporate Transparency Act Ruled Unconstitutional. The Impact On Beneficial Ownership Information Reporting.

Reminder of Annual Election of New York State and New York City Pass-through Entity Tax (PTET)

House Passes Bill Expanding Child Tax Credit and Business Breaks

IRS Clarifies Which Meals Qualify for Temporary 100%
Expense Deduction

The IRS has released guidance explaining when the temporary 100% deduction for restaurant meals is available and when the 50% limitation on the deduction for food and beverages continues to apply (Notice 2021-25).

Under prior tax legalization, a deduction for any expense for food or beverages is generally limited to 50% of the amount that would otherwise be deductible. However, the Consolidated Appropriations Act, 2021, P.L. 116-260, enacted a temporary exception to the limitation for amounts paid or incurred after December 31, 2020, and before January 1, 2023, for food or beverages provided by a restaurant. This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.

To provide certainty to taxpayers, the IRS guidance explains when the temporary 100% deduction applies and when the 50% limitation continues to apply.

Under the notice, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. A restaurant does not include a business that primarily sells prepackaged food or beverages, not for immediate consumption, including a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. The 50% limitation continues to apply to the amount of any deduction otherwise allowable to the taxpayer for any expense paid or incurred for food or beverages acquired from those types of businesses.

The notice explained that an employer may not treat as a restaurant:

  • Any eating facility located on the employer’s business premises and used in furnishing meals excluded from an employee’s gross income under Sec. 119; or
  • Any employer-operated eating facility treated as a de minimis fringe under Sec. 132(e)(2), even if that eating facility is operated by a third party under Regs. Sec. 1.132-7(a)(3).

The notice is effective for amounts paid or incurred after December 31, 2020, and before January 1, 2023.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.