The U.S. Treasury Department and IRS on February 21, 2020, released for publication in the Federal Register a notice of proposed rulemaking (REG-100814-19) as guidance under section 274 and regarding changes made to section 274 by the U.S. tax law enacted in 2017.
The 2017 tax law (Pub. L. No. 115-97)—the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA)—eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. It also increased the scope of the deduction limitation for expenses related to food and beverages provided by employers.
The proposed regulations [PDF 309 KB] (12 pages as published in the Federal Register) address the elimination of the deduction for expenditures related to entertainment, amusement or recreation activities and provide guidance to determine whether an activity is considered to be entertainment. The proposed regulations also address the limitation on the deduction of food and beverage expenses and the applicability of exceptions under section 274(e).
According to a related IRS release—IR-2020-39 (February 24, 2020)—the proposed regulations generally follow guidance provided by the IRS in Notice 2018-76, a notice that provided transitional guidance on the deductibility of expenses for certain business meals. Read TaxNewsFlash
The proposed regulations as originally published in the Federal Register in February 2020 provided that the date of the public hearing would be April 7, 2020. Subsequently, the date of the public hearing was changed to April 29, 2020.
Read the notice [PDF 238 KB] (March 2020) announcing this public hearing date change and also announcing that outlines of topics to be discussed at the public hearing and comments must be received by April 13, 2020.
The proposed regulations describe and clarify the statutory requirements of section 274(a), 274(k), and 274(n), as well as the applicability of certain exceptions under section 274(e) to food or beverage expenses.
Prop. Reg. section 1.274-12 addresses expenses for business meals as described in Notice 2018-76, as well as expenses for other meals including travel meals and employer-provided meals.
According to the preamble, the proposed regulations:
In addition, the proposed regulations:
Concerning business meal expenses, the proposed regulations:
According to the preamble, the proposed regulations:
These limitations do not apply to deductions for moving expenses under section 217. However, the 2017 tax law amended section 217 to suspend the deduction for moving expenses for tax years beginning after December 31, 2017, and before January 1, 2026, except with respect to certain members of the Armed Forces. Thus, the proposed regulations revise the reference to section 217 to reflect that amendment.
The proposed regulations:
The deduction limitation rules generally apply to all food and beverages, whether characterized as meals, snacks, or other types of food or beverage items.
Unless one of the six exceptions under section 274(n)(2)(A) (by reference to subsection (e)) applies, the deduction limitations apply regardless of whether the food or beverages are treated as de minimis fringe benefits under section 132(e).
The proposed regulations define food or beverage expenses to mean the cost of food or beverages, including any delivery fees, tips, and sales tax
In the case of employer-provided meals at an eating facility, food or beverage expenses do not include expenses for the operation of the eating facility such as salaries of employees preparing and serving meals, and other overhead costs.
Section 274(k)(2) and 274(n)(2)(A) provide that the limitations on deductions in section 274(k)(1) and 274(n)(1), respectively, do not apply to any expense described in section 274(e)(2), (3), (4), (7), (8), and (9). The proposed regulations, therefore, provide that the deduction limitations are not applicable to expenditures for business meals, travel meals, or other food or beverages that fall within one of these exceptions.
The proposed regulations provide guidance on:
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