The agency's notice explained that the temporary allowance provided under Internal Revenue Code Section 274(n)(2)(D ) doesn't apply to establishments such grocery stores that primarily offer products not meant for immediate consumption. Off-site consumption may still qualify as immediate consumption, the agency said.
"A restaurant does not include a business that primarily sells prepackaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk," the agency said.
The IRS also clarified that businesses are prohibited from fully deducting meal expenses that are incurred at dining facilities that are controlled by the taxpayer in question, such as on-campus dining halls and cafeterias, that are used for an employee's reduction in gross income per IRC Section 119.
The same disallowance applies to taxpayer-operated dining facilities that would qualify for the de minimis fringe exclusion provided under IRC Section 132 , regardless of whether such facilities are operated by third-party vendors, the agency said.
The Consolidated Appropriations Act , per its provision codifying IRC Section 274(n)(2)(D), temporarily allows for 100% business meal expensing from Jan. 1, 2021, through Dec. 31, 2022, in certain cases.
Before the enactment of the Tax Cuts and Jobs Act , businesses could deduct 50% of both qualifying meal and entertainment expenses. After the TCJA became law, however, entertainment expenses were generally disallowed as deductions. The IRS issued final rules on the change in September.
IRC Section 274 generally prohibits deductions for expenses related to recreation, entertainment or amusement-oriented activities. However, under the TCJA's changes businesses can still deduct meal expenses incurred at entertainment venues so long as those food or beverage items are purchased independently from the entertainment activities or are separately stated on invoices or receipts.
--Additional reporting by Amy Lee Rosen. Editing by Vincent Sherry.
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