Business deduction for food, beverages — 2 IRS notices

Your company may benefit from the temporary 100% business deduction for food or beverages from restaurants, and A/P and Payroll hold key information that can help.

By way of reminder, the Taxpayer Certainty and Disaster Relief Act of 2020 bumped up the business deduction from 50% to 100%.

The law allowed only a temporary increase, though, covering expenses paid or incurred in 2021 or 2022.

To shed light on the law, IRS has released two notices.

Substantiated with per diem rate?

Most recently, IRS issued Notice 2021-63, providing clarity on the temporary 100% deduction when a company uses a per diem rate or allowance.

Of course, companies can use a per diem rate to substantiate business expenses paid or incurred while traveling away from home.

In the notice, IRS said the meal portion of a per diem rate or allowance paid or incurred during 2021 or 2022 can be attributed to food or beverages provided by a restaurant. That’s a sigh of relief for businesses hoping to take the temporary 100% business deduction.

Get A/P in the loop on this recent IRS notice. Ask them to flag expense reimbursement that might qualify for the business deduction.

Offered as fringe benefit?

Earlier on, in Notice 2021-25, IRS looked closely at the term “restaurant.” Reason: The law stipulated that food or beverages had to come from a restaurant. Otherwise, businesses would need to limit the deduction to 50%.

Takeout was fair game, IRS explained, but not from a grocery store; specialty food store; beer, wine or liquor store; drug store; convenience store; newsstand; or vending machine or kiosk.

The notice also stated the 100% business deduction can’t be taken if the restaurant is an:

• eating facility located on-site at your company and used to provide meals excluded from an employee’s gross income under Sec. 119, or
• employer-operated eating facility treated as a Sec. 132 de minimis fringe benefit, even if the facility is operated by a third party.

With Payroll already keeping tabs on whether fringe benefits are taxable for employees, you may want them to run additional reports for you. So, consider passing along the latest IRS info to them as well.