IRS guidance on the deduction for business meals tracks AICPA recommendations

October 25, 2018

IRS guidance on the deduction for business meals tracks AICPA recommendations

Guidance issued by the Internal Revenue Service (IRS) on October 3 clarified that business meals generally will continue to be 50 percent deductible, as the American Institute of CPAs (AICPA) recommended in its April 2 letter to the U.S. Department of the Treasury and the IRS.

Confusion about the meal deduction followed enactment of the Tax Cuts and Jobs Act, which eliminated deductions for entertainment expenses, but left unanswered the question of whether client meal costs can be deducted when they are intermingled with entertainment expenses.  The IRS said in its guidance that if the food and drinks are billed separately they can be deducted.

“It’s the right answer,” Kristin Esposito, senior manager of tax policy and advocacy for the AICPA, said. “We’re very pleased with the result and that the IRS found our letter so helpful.”  In an October 4 Politico Morning Tax story, Esposito was quoted this way:  “The IRS even used examples similar to what AICPA offered to illustrate how the agency would parse the issue.”

The AICPA had urged the IRS to provide “immediate guidance” in its April letter because “taxpayers require clarification in order to account for the changes in deductibility of these items and revise their accounting systems and expense and reimbursement policies and to comply with them on their 2018 tax returns and financial statements.”  The AICPA’s letter offered recommendations, with illustrative examples, about nine broad issues related to the changes to Internal Revenue Code Section 274.

For more details about the IRS guidance read the October 3 Journal of Accountancy story.