While the TCJA eliminated the deduction for entertainment expenses, Congress did not amend the provisions relating to the deductibility of business meals. Thus, taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel. However, as before the TCJA, no deduction is allowed for the expense of any food or beverages unless (a) the expense is not lavish or extravagant under the circumstances, and (b) the taxpayer (or an employee of the taxpayer) is present at the furnishing of the food or beverages.
In October 2018, the Treasury Department and the IRS published Notice 2018-76, with guidance clarifying when meal expenses are nondeductible entertainment expenses (see Tax Alert 2018-1997).
Under the Notice, taxpayers may deduct 50% of an otherwise allowable meal expense if:
- The expense is an ordinary and necessary expense under Section 162(a) that is paid or incurred during the tax year in carrying on a trade or business
- The expense is not lavish or extravagant under the circumstances
- The taxpayer or the taxpayer's employee is present at the furnishing of the food or beverages
- The food and beverages are provided to current or potential business customers, clients, consultants or similar business contacts
- The food and beverages (for food and beverages provided during or at an entertainment activity) are purchased separately from the entertainment or the cost of the food or beverages is stated separately from the entertainment cost on one or more bills, invoices or receipts
