Deducting Business Meals: IRS Guidance on What is a ‘Restaurant’

Deducting Business Meals: IRS Guidance on What is a ‘Restaurant’

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By Gary G. Wallace, CPA, Managing Partner

Notice 2021-25 Provides Guidance on the Food and Beverage Deduction

Overview of the Business Meal Deduction

Under current law, businesses may deduct 50% of the cost of business-related meals. The Consolidated Appropriations Act, 2021, (CAA, 2021) included a provision regarding deductibility of business meal expenses to assist taxpayers impacted by COVID-19. The legislation adds an exception to the 50% limit for expenses for food or beverages provided by a ‘restaurant’. Under the CAA, 2021, food and beverage expenses are 100% deductible and apply to expenses paid or incurred after December 31, 2020, and before January 1, 2023.

The IRS recently released Notice 2021-25 which provides guidance on what is or isn’t considered a ‘restaurant’ for purposes of the deduction.

Definition of a Restaurant for 2021-2022 Deduction

Under Notice 2021-25, 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.

However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as 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 such a business (unless another exception in Code Sec. 274(n)(2) applies to such expense).

In addition, an employer may not treat the following as a restaurant:

  • Any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income, or
  • Any employer-operated eating facility treated as a de minimis fringe, even if such eating facility is operated by a third party under contract with the employer

Note: Under Section 119 or Section 132(e)(1), the cost of food or beverages an employer purchases off the employer’s business premises from a source that qualifies as a restaurant may be 100% deductible even though the value is excluded from the income of employees.

Questions on food and beverage tax deductions for your business? Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000. We are here to help.

 


About the Author

Gary provides tax and business advisory services to business and individual clients. He has advised clients in various aspects of restructurings, including tax aspects of debt workouts and foreclosures, forgiveness of indebtedness, bankruptcy restructurings and liquidations, establishing liquidating trusts and partner-partnership transactions. Gary also has significant knowledge and experience in individual taxation, business taxation, and advising clients on all aspects of tax matters. He is the Managing Partner of the Firm.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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