The Treasury Department and Internal Revenue Service (IRS) have issued a new notice under the Taxpayer Certainty and Disaster Relief Act of 2020 (the "Act") which provides guidance on the 100% deduction for food and beverage expenses provided by a restaurant and incurred after December 31, 2020 and before January 1, 2023.
The purpose of increasing the otherwise allowable 50% deduction to 100% was to encourage spending at bars and restaurants affected by the COVID-19 pandemic. As a result, the increased deduction only applies to expenses incurred at a "restaurant" which is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption. The definition of restaurant excludes businesses that primarily sell pre-packaged food or beverages not for immediate consumption. The 100% deduction can be deducted as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.
The deduction does not apply to expenses for food and beverages furnished by employers on the business premises primarily for the employer's employees and used in furnishing meals excluded from an employee's gross income or that are treated as a de minimis fringe benefit, including employer-operated eating facilities that are operated by a third party under contract with the employer.
If you have any questions about this temporary tax benefit, please contact an attorney at Summers Compton Wells LLC.