Ref: Code Sec 274; Notice 2018-76; TD 9925

The tax world changed after implementation of the Tax Cuts and Jobs Act in 2018. Here’s a quick summary of the new final regulations in this area:

1. Food/beverages: Cannot be lavish and are generally only 50% deductible. Exceptions where full deduction (partial list):
   1. If compensation to an employee (e.g., employer cafeteria);
   2. If part of recreational/social activity for employees (e.g., EE snacks in break room)
   3. Facilities available to general public (e.g., realtor open houses or business seminar)
2. Entertainment/recreation: Generally non deductible. Exceptions (partial list):
   1. Directly related: If entertainment is directly related to the business (e.g., golf range activity relating to sale of new line of clubs) OR
   2. Business discussion exception: If entertainment/recreation is directly preceding or following a substantial and bona fide business discussion (including meetings at a convention). For example, a band playing during pre-meeting assembly time.

Note that travel meals continue to be 50% deductible when employee is away from home on business. Additionally, meals with customers/clients are still 50% deductible. All old rules regarding substantiation and non-lavish continue to apply.

Special rules apply to employee cafeterias and other arrangement under which the employer may consider part of the meal as compensation. CAUTION: If an employer is providing meals to employees and considers the reportable (i.e. wage) market value to be zero, the IRS will disregard the special rule safe harbors under IRC Sec 274(e)… So research the special rules and include something in the employee compensation!