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Full Deductibility of Business Meals for Employee Virtual Events Under H.R. 133

On December 21, 2020, Congress released the text of, and subsequently voted to approve the Consolidated Appropriations Act, 2021 (the "Act"), more than 5,000 pages in length. The Act provides extensive year-end Covid-19 relief. Section 210 of the Taxpayer Certainty and Disaster Relief Tax Act of 2020 (“Taxpayer Certainty Act”), part of the Covid-19 relief package, allows an employer a full deduction for certain business meals the expense for which an employer paid or incurred after December 31, 2020 and before January 1, 2023. The amendment to Section 274(n) of the Internal Revenue Code of 1986, as amended (“Code”) addresses the adverse effect Congress has anticipated the Covid-19 pandemic to continue to impart on the struggling restaurant industry, given State or local government-mandated shutdowns in certain areas in the United States. The language in section 210(a) of the Taxpayer Certainty Act would assist the restaurant industry by allowing an employer to expense 100 percent of an amount paid or incurred for food or beverages provided by a restaurant, which otherwise is allowable as an income tax deduction under the Code.

A majority of employers have implemented work from home arrangements for employees. Business meetings and employee social gatherings that at times would have taken place on premises have been conducted virtually. Nevertheless, employers may want to deduct costs of food consumables for employee virtual get-togethers that, instead of being catered by a restaurant, may have been acquired at other types of venues. Subject to clarifying Treasury and IRS guidance, food and beverage expenses for virtual meetings could be deductible under Section 274(e)(5), as expenses incurred by an employer directly related to business meetings of its employees, stockholders, agents, or directors. This exception would be subject to the 50 percent deduction limitation in Section 274(n)(1).

Also, an employer could deduct edible goods expenses for employee virtual happy hours under Section 274(e)(4) relating to employee recreational activities. Excepted employee recreational expenses are excluded from the 50 percent deductibility ceiling under Section 274(n)(2)(A), similarly to meals ordered from a restaurant under new Section 274(n)(2)(D). Section 210 of the Taxpayer Certainty Act effectively incentivizes employers to order food and beverages from restaurants for employee meetings or social activities. However, in the virtual meeting context, restaurant deliveries to numerous employee home bases may not be feasible.

The Act is expected to be signed into law by the President imminently. Treasury and the IRS may issue interpretive guidance clarifying the definition of the term “restaurant” for purposes of section 210 of the Taxpayer Certainty Act and including within its scope caterers or similar providers of food and beverages for employee events, which could be delivered effectively to multiple employee locations.


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