On April 8, 2021, the IRS issued Notice 2021-25 (the "Notice") confirming availability of a temporary 100-percent deduction under section 274 of the Internal Revenue Code of 1986, as amended ("Code") for meals ordered by employees for virtual events from restaurants. Code section 274(n) recently was amended by coronavirus relief legislation under section 210 of the Taxpayer Certainty and Disaster Relief Tax Act of 2020 (the "Taxpayer Certainty Act"). The provision permitted employers to expense fully certain business meals after December 31, 2020, and before January 1, 2023 provided by a restaurant. Thus, section 210 of the Taxpayer Certainty Act temporarily reversed an amendment to Code section 274 under the 2017 Tax Cuts and Jobs Act ("TCJA"), which, among other statutory changes, limited the deduction for certain business meals to 50 percent of the amount of expense.
The Firm's January 2021 article in the Bloomberg Daily Tax Report argued that section 210 of the Taxpayer Certainty Act, interpreted in conjunction with final Treasury regulations under Code section 274 issued in September 2020 permitted employers to deduct fully business meals purchased for employees working from home from restaurants or caterers for virtual networking events, even though the food or beverages were not consumed on restaurant premises. The Notice confirms this position.
The Notice clarifies the amendment to Code section 274(n) under section 210 of the Taxpayer Certainty Act. The Notice provides that the term restaurant for purposes of the exception under Code section 274(n)(2)(D) to the 50-percent business meal deduction limitation means "a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business's premises."
On the other hand, a restaurant does not include purveyors of pre-packaged consumables under the Notice, such as a grocery store, wine store or convenience store. Employer cafeterias similarly are excluded. Such expenses continue to be subject to the 50-percent limitation on the deduction. Thus, cafeteria meals provided by employer to its employees continue to be only partially deductible until the deduction expires as of December 31, 2025 under the TCJA amendment. Employers should take note of the relief provided by the Notice, claiming the temporary 100-percent deduction for consumables ordered from restaurants or catering providers for virtual events scheduled for employees with ongoing work-from-home arrangements.