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PILLA TALKS TAXES - Featured Article
_________________________________________ 

DEDUCTIBLE MEAL EXPENSES

What's Left After the Jobs Act?

by Daniel J Pilla 

  

In last month’s issue of PTT, I discussed the changes to §274(a) brought on by the Tax Cuts and Jobs Act. The law eliminated entertainment” expenses, regardless of whether they were either directly related to” or otherwise associated with, the active conduct” of a business. Code §274(a) (prior to the Jobs Act amendment.) As stated in the article, no entertainment” expenses are allowed under §274(a), period.   

The key question I addressed is what is allowed as meal expenses. I answered that question and further distinguished between entertainment expenses and business meals. My conclusion is that meal expenses incurred in a clear business setting, not incidental to or associated with an entertainment activity, are still deductible. I draw my conclusion from the cases and regulations that distinguish between meals and entertainment.   

But it is also important to understand that while the Jobs Act eviscerated §274(a) as to entertainment expenses, §274(e) continues to allow deductions for meals and limited entertainment expenses within the narrow scope discussed below. Thus, what was disallowed under §274(a) may be allowable under §274(e), depending on the facts.   

The following is a breakdown of the provisions of §274(e).   

1. §274(e)(1). 50% deduction allowed for food and beverages provided to employees by employers on employer premises.  

2. §274(e)(2). 100% deduction for meals and entertainment expenses treated as employee compensation and reported on Form W-2, such as employer paid vacations. The excess expenses for the company aircraft over the amount of the compensation included in income for specified” employees remain completely disallowed.  

3. §274(e)(3). 100% deduction for reimbursed meals and entertainment expenses under an accountable plan.  

4. §274(e)(4). 100% deduction for non-discriminatory social and recreational expenses for employees, such as holiday parties and company picnics.  

5. §274(e)(5). 50% deduction for meals and 100% deduction for entertainment other than meals in connection with business meetings of employees, stockholders, directors, etc.   

6. §274(e)(6). 100% deduction for entertainment other than meals and 50% for meals in connection with §501(c)(6) Business League meetings, such as chamber of commerce, real estate board and certain professional organizations.  

7. §274(e)(7). 100% deduction for meals and entertainment for items made available to the public, such as the distribution of samples, complimentary goods, etc.  

8. §274(e)(8). 100% deduction for costs of meals and entertainment sold to customers in the ordinary course of business.  
9. §274(e)(9). 100% deduction for meals and entertainment included in income of non-employees, with the same limitation as for employees in item 2 above, that being expenses for the company aircraft in excess of the amount included in certain non-employees’ income, remains completely non-deductible.  

Section 274(n) provides a 50% limitation for all food and beverages with the exception of those in §274(e)(2),(3),(4),(7),(8), or (9) (see list above) and for certain crew members, drivers, and other special workers. Thus, allowable meals are subject to the 50% haircut unless they fall under one of the exceptions of §274(e)(2),(3),(4),(7),(8), or (9).   

And here’s yet another twist on this morass. The percentage allowed as a deduction for entertainment expenses under §274(e)(5) went from 50% to 100%. Thus, entertainment continues to be allowed, and at even a higher percentage, when incurred in the narrow fact scenario presented there.  

The documentation required to support a deduction for meals and entertainment is strict. Section 274(d) requires detailed substantiation to support any meal or entertainment expense deduction. Per §274(d)(4), the substantiation consists of the following:   

1. The amount of the expense,   

2. The time and place of the travel, meal, entertainment, amusement, recreation,   

3. The business purpose of the expense, and   

4. The business relationship to the taxpayer of persons fed or entertained.  

A detailed log or contemporaneous notes written directly on receipts are essential to carrying this burden of proof. See my book, How to Win Your Tax Audit for more on this issue.

This article is from the July 2018 Pilla Talks Taxes Newsletter.   It is one of the cutting edge articles you can read when you are a subscriber to Dan's electronic newsletter, Pilla Talks Taxes.    Newsletter subscribers can read and download the entire issue by logging in at http://taxhelponline.com/subscriber-login.html

      

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ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUE:


THE NEW POSTCARD-SIZED TAX RETURN

Who Are They Kidding?

 

DEDUCTIBLE MEAL EXPENSES
What's Left After the Jobs Act? 
 

IRS LAUNCHES NEW COMPLIANCE INITIATIVES
Where Will they Attack Next? 
 

ANATOMY OF A FEDERAL CRIMINAL TAX CASE
Part 1 

by Donald W. (Mac) MacPherson
Attorney

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

 

AVOIDING PENALTIES UNDER OBAMACARE

 



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