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Deductions Back on the Menu for Ballgame, Entertainment Meals (1)

Feb. 25, 2020, 4:20 PMUpdated: Feb. 25, 2020, 4:43 PM

Getting tax write-offs for skybox shrimp at the next company ballgame outing will be much easier thanks to IRS guidance that goes beyond what many tax attorneys were hoping to see.

The Internal Revenue Service’s proposed rules clarify that business meals at a sports or entertainment venue are still eligible for a 50% tax deduction, as long as receipts documenting the separate costs between event and food are clearly provided, even if they’re on the same invoice.

That gives attorneys assurance that clients will still receive a write-off for meals that occur during a fancy event, said Bruce Ely, a partner at Bradley Arant Boult Cummings LLP in Birmingham.

The 2017 tax law had erased write-offs for meals and entertainment expenses outside of seasonal celebrations, like holiday parties, to appreciate employees. Businesses would only be able to deduct 50% of the costs of employee lunches, for instance, and none of the costs of drinks and hors d’oeuvres at entertainment events. But the proposed rules crystallize the fuzzy lines between meals and other expenses at entertainment events that had existed since the IRS released guidance (Notice 2018-76) a year ago on changes to tax code Section 274.

“The main thing people were hoping to see was clarification,” said Andrew Bird, an assistant professor of Accounting at Carnegie Mellon University. “There were some gray areas in the 2018 rules and mostly this is just saying ‘OK, for this example here’s what you do, for this example here’s what you do.’”

The Feb. 21 regulations are even more favorable than prior guidance and is beyond what people were hoping to see, said Ruth Wimer, a partner specializing in employee benefits and executive compensation at Washington-based Winston & Strawn LLP.

“The IRS was practical by saying no one’s going to be able to figure out when you cross the line to it being more than just a business meal and when it becomes entertainment,” Wimer said.

If a meal is wrapped around a larger entertainment event, you can get out of it by separately stating the food and beverage costs, she added.

The IRS in its regulations added the example of employees attending a basketball game to spell out when meals at an event are deductible.

“The cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expenditure and is not subject to the section 274(a)(1) disallowance,” the proposed regulations state.

So meals can still be deductible, according to the regulations, even if they’re itemized on the same invoice as entertainment expenses.

But if that itemization isn’t crystal clear, “there is still the trap for the unwary. That’s where a revenue agent can become very anal retentive,” Ely said.

(Updated with additional comment in fifth paragraph.)

To contact the reporter on this story: Sam McQuillan in Washington at smcquillan@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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