U.S. Treasury and IRS Issues Guidance to Businesses About Temporary Food & Beverage Deduction Exception
by Kyle P. Graham
On Thursday, the United States Department of Treasury and the IRS released guidance which temporarily allows businesses a full deduction for food and beverages purchased from restaurants starting after December 31, 2020 and before January 1, 2023. According to the guidance, businesses may claim 100% of their food or beverage expenses paid to restaurants, as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not considered to be lavish or extravagant under the circumstances.
Under Internal Revenue Code Section 274(n)(1), 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 enacted in December 2020 allows a temporary exception to the limitation for amounts paid or incurred after December 31, 2020 and before January 1, 2023 for food and beverages provided by a restaurant. Pursuant to the Act, the temporary exception allows a 100% deduction for food or beverages from restaurants.
Under the new guidance, “restaurants” include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, “restaurants” do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores, convenience stores, specialty food stores, beer, wine or liquor stores, drug stores, newsstands, and vending machines or kiosks.
Additionally, the guidance explains 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, and certain employer-operated eating facilities, even if these facilities are operated by a third party under contract with the employer.