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Notice 2018-76: Transitional guidance on deductibility of business meal expenses

Notice 2018-76: Transitional guidance on deductibility

The IRS today released an advance version of Notice 2018-76 as guidance on the deductibility of expenses for certain business meals under section 274 as amended by the new U.S. tax law.


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Notice 2018-76 [PDF 35 KB] explains that the new tax law (Pub. L. No. 115-97, enacted December 22, 2017) amended section 274 to generally disallow a deduction for expenses for entertainment, amusement, or recreation. The new tax law, however, did not specifically address the deductibility of expenses for business meals.

Notice 2018-76 provides:

  • Transitional guidance on the deductibility of business meals
  • The IRS and Treasury Department intend to issue proposed regulations that will include guidance on the deductibility of expenses for certain business meals
  • Taxpayers may rely on this guidance for the treatment of business meal expenses until the proposed regulations are issued


The new tax law repealed deductions for entertainment, amusement, and recreation—even when directly related to the conduct of the taxpayer’s trade or business. The 50% deduction limitation for food and beverage expenses associated with a trade or business is generally retained. 

There has been uncertainty as to whether the meals provided during an entertainment event fall under the meal or entertainment deduction limit (for example, a meal in connection with a business client at a ballgame).

Notice 2018-76

Today’s IRS notice first explains that the new tax law did not change the definition of “entertainment” under section 274(a)(1). Thus, the regulations that define entertainment continue to apply. 

Next, Notice 2018-76 explains that while the new tax law did not address the circumstances when the provision of food and beverages might constitute entertainment, the legislative history clarifies that taxpayers may continue to deduct 50% of the food and beverage expenses associated with operating a trade or business.

When issued, the proposed regulations will (according to the IRS notice) clarify when business meal expenses are nondeductible entertainment expenses and when they are 50% deductible expenses. Under Notice 2018-76, taxpayers may deduct 50% of an otherwise allowable business meal if:

  • The expense is an ordinary and necessary expense under section 162(a), paid or incurred during the tax year in carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances; 
  • The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages; 
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and 
  • In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The notice states that the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.


Notice 2018-76 includes three examples to illustrate the application of this guidance. The examples highlight the need to have food and beverage expenses either paid separately from entertainment costs or on an invoice that separately states the costs of food and beverages.  

  • In Example 1, a taxpayer invites a business contact to a baseball game. The taxpayer purchases tickets for the game. While at the game, the taxpayer separately purchases hot dogs and drinks. While the game tickets are not deductible, the hot dogs and drinks are subject to a 50% deduction disallowance.
  • In Example 2, the taxpayer invites a business contact to attend a basketball game.  The taxpayer buys tickets for seats in a suite, which includes food and beverages. The invoice for the tickets states that food and beverages are included in the ticket price. Because the invoice does not separately provide the cost for food and beverages, the entire cost of the ticket is nondeductible.  
  • Example 3 has the same facts as Example 2, except that the invoice for the suite tickets separately states the cost of food and beverages. Because the food and beverage amount is separately provided on the invoice, this amount is subject to a 50% deduction, while the entertainment portion is disallowed.

Request for comments

Comments about the future proposed regulations are requested, and are due by December 2, 2018. The IRS has specifically requested comments concerning: 

  • Whether and what further guidance is needed to clarify the treatment of—
    • Entertainment expenses under section 274(a)(1)(A)
    • Business meal expenses
    • Whether the definition of entertainment in Reg. section 1.274-2(b)(1)(i) is to be retained and, if so, whether and how it ought to be revised
    • Whether the objective test in Reg. section 1.274-2(b)(1)(ii) is to be retained and, if so, whether and how it ought to be revised
    • Whether and what additional examples need to be addressed in the guidance

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