100% Deduction for Meals

IRS issued Notice 2021-25 providing additional guidance regarding the 100% deduction for business meal expense incurred in the calendar years 2021 and 2022.

IRC section 274 provides a 50% limitation for business meal expenses.  However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 added section 274(n)(2)(D) allowing a temporary 100% deduction for business meals or beverages provided by a restaurant paid or incurred January 1, 2021, through December 31, 2022.  The notice provides that for purpose of section 274(n)(2)(D) deduction, “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.    It does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption (e.g., convenience store, liquor store, vending machine, etc.).

Additionally, the notice provides, for purpose of 274(n)(2)(D), that an employer may not treat as restaurant (a) any eating facility located on  the business premises of the employer and used in furnishing meals excluded from an employee’s gross income under section 119, or (b) any employer-operated eating facility treated as a de-minimis fringe under section 132(e)(2), even if such eating facility is operated by a third party under contract with the employer.

For additional detail, please see the Notice  2021-25 https://www.irs.gov/pub/irs-drop/n-21-25.pdf