Clergy Business Meals Deduction

[Gen_Joab]

Business meals are deductible at 50%, unless they are taken at a restaurant.   But is it different for clergy?  I ask because the chart on p. 15 of Pub. 517 (worksheet 2, line 3) explicitly directs the clergy to deduct ALL meals at 100%, and it doesn't even allow the option of deducting them at 50%.   Yet, TT deducts my meals at 50%, so TT is directly contradicting the chart on p. 15.  Perhaps the chart is in error, but we can only go by what the IRS puts in print, and it is very clearly there in print!  
So, which is it:  50% for some and 100% for some, or 100% for ALL meals for clergy on their Schedule C?

[Vanessa A]

There is no difference for Clergy business meals and regular business meals. The 100% restaurant meal exclusion is for 2021 and 2022.  Pub 517 refers you to Pub 463 for more information on the special allowance.  There is no specific exclusion for clergy in Pub 463. 

So on your Schedule C it would be 50% for meals not at a restaurant and 100% exclusion for restaurant meals. 

[Opus 17 · Accepted solution]

There's some funny business afoot, thanks to the various "disaster relief", "COVID relief" and "inflation reduction" laws.

For context, this calculation is used to apply the Deason rule to work expenses when clergy have both a taxable salary and an excluded housing allowance.  Self-employed clergy can deduct work-related expenses from their income on schedule C and from their income subject to SE tax on schedule SE.  Clergy who are W-2 employees (which is most, really) can't deduct work-related expenses as itemized deductions using form 2016 because that was eliminated for 2018-2025, but they can still subtract work-related expenses from their income subject to SE tax on schedule SE.

And, when we are talking meals, we are mainly talking about meals taken when traveling away from home. Meals taken locally are usually disallowed because they are regular personal expenses and are never allowed, or they are "entertainment" which is disallowed by tax reform for 2018-2025 (see publication 463).   Local meals are sometimes deductible if you are present and business is conducted.  Then, remember that you can normally deduct 50% of your actual meal cost or 50% of the federal meal and incidentals rate for the place you are eating the meal.

Now, look at the very first paragraph of pub 517, it notes under "what's new" that "certain" meals may be deducted at 100%.  To understand what that means, you need to know more about publication 463 and IRS notice 2021-63.  Briefly, one of the disaster relief acts says that for 2021-2022, if you eat a work-related meal at a restaurant, you can deduct 100% of the cost instead of 50% of the cost.  (Which also means that if you bought food at a grocery store and cooked it yourself, you can only deduct 50%, which seems a bit unfair.)

Then IRS notice 2021-63 says if you use the Federal MEI flat rate, you can assume the meal portion of the flat rate allowance was eaten at restaurants and deduct 100%.  (You can't deduct the Incidentals portion of the flat rate.)

So bottom line, if you use the federal flat rate for your deductible meals, you can deduct 100% of the meal portion of the flat rate.  If you want to use the actual expense method, you can deduct 100% for restaurant expenses and 50% for non-restaurant expenses.  For 2022 only. 

Look up the MEI rate here

https://www.gsa.gov/travel/plan-book/per-diem-rates/mie-breakdown

Pub 517

https://www.irs.gov/pub/irs-pdf/p517.pdf

Draft 2022 pub 463.

https://www.irs.gov/pub/irs-dft/p463--dft.pdf

Notice 2021-63

https://www.irs.gov/newsroom/irs-provides-guidance-on-per-diem-rates-and-the-temporary-100-percent-d...

[Opus 17]

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@Vanessa A wrote:

There is no difference for Clergy business meals and regular business meals. The 100% restaurant meal exclusion is for 2021 and 2022.  Pub 517 refers you to Pub 463 for more information on the special allowance.  There is no specific exclusion for clergy in Pub 463. 

So on your Schedule C it would be 50% for meals not at a restaurant and 100% exclusion for restaurant meals. 

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With the caveat that IRS notice 2021-63 says that if you use the Federal MEI rate instead of your actual expenses, you can treat the entire meal portion of the MEI rate as having been spent at a restaurant and thus 100% deductible. (Not the incidentals portion.)

[Gen_Joab]

So, what do you do with the chart on p. 15 of Pub. 517  (line 3 of worksheet 2)?  Just ignore the instructions?

[Gen_Joab]

Thanks for clarifying.   This is very helpful. 
In my case, I was speaking of meals taken while traveling overnight for my Schedule C  (not employee expenses), and I always use the fed. standard per diem rates, so if I'm understanding correctly, these meals would all be deducted at the 100% rate since I'm simply using the allowance amount and not actual costs, correct?

[Opus 17]

@Gen_Joab 

The various rules and publications are interdependent, and the definition of “meal” in publication 517 requires an understanding of publication 463, even if it doesn’t exactly say so.

Your deductible meals are certain local meals that were work-related, and your travel meals if you travel away from home for work purposes. If you use the federal MEI rate, you can enter 100% of the meal portion of the MEI rate. If you use your actual expenses, enter 50% of your actual expenses, regardless of the instructions on the work sheet.

[Opus 17]

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@Gen_Joab wrote:

Thanks for clarifying.   This is very helpful. 
In my case, I was speaking of meals taken while traveling overnight for my Schedule C  (not employee expenses), and I always use the fed. standard per diem rates, so if I'm understanding correctly, these meals would all be deducted at the 100% rate since I'm simply using the allowance amount and not actual costs, correct?

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Yes, but only the meal portion, not the incidental portion.

[AmeliesUncle]

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@Opus 17 wrote:

Then IRS notice 2021-63 says if you use the Federal MEI flat rate, you can assume the meal portion of the flat rate allowance was eaten at restaurants and deduct 100%.  (You can't deduct the Incidentals portion of the flat rate.)

Interesting.  I didn't notice that before.  Thanks.