IRS clarifies which meals qualify for 100% deduction for 2021 and 2022

Under IRS Sec. 274(n)(1), any business expense of food or beverages is generally limited to 50% of the amount that would otherwise be deductible. However, a recently-enacted temporary exception allows 100% deduction of restaurant food and beverage expenses incurred after Dec. 31, 2020 and before Jan. 1, 2023.  This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.

Under the notice, 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. A restaurant does not include a business that primarily sells prepackaged food or beverages not for immediate consumption, including 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 for any expense paid or incurred by a business for food or beverages acquired from those types of non-restaurant stores.

The notice further explained that an employer may not treat as a restaurant for deduction purposes:

  • Any eating facility located on the employer’s business premises 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 that eating facility is operated by a third party.

To confirm compliance with the new meal deduction guidelines or for more specific details, contact your ShindelRock tax professional.