IRS issues guidance on 100% meals deduction


The IRS has offered guidance (Notice 2021-25 ) on the temporary suspension of the 50% disallowance for certain meal expenses provided by a restaurant in 2021 and 2022.

Under Section 274, business meal expenses are generally subject to a 50% deduction limitation. The Consolidated Appropriations Act, 2021 (Pub. L. No. 116-260) allows taxpayers to claim a 100% deduction for food or beverages provided by a restaurant and paid or incurred between Jan. 1, 2021, and Dec. 31, 2022. However, the statutory language provided no information on what constitutes a “restaurant.”

Notice 2021-25 defines “restaurant” as 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. It clarifies that a “restaurant” does not include a business that primarily sells pre-packaged 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.

Further, Notice 2021-25 explains that an employer may not treat either of the following as a restaurant for purposes of Section 274(n)(2)(D):

  • Any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income under Section 119
  • Any employer-operated eating facility treated as a de minimis fringe under Section 132(e)(2), even if such facility is operated by a third party under contract with the employer

Taxpayers should be aware that business meals must still meet certain existing requirements in order to be deductible. Section 162 provides that a deduction is only allowed for ordinary and necessary expenses paid or incurred in carrying on its trade or business. Further, Section 274(k) provides that no deduction is allowed for the expense of any food or beverage unless the expense is not lavish or extravagant under the circumstances and the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages. Taxpayers should also consider substantiation requirements under Section 274.



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