Tax reform expands entertainment, meal expense disallowance

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December 2019

Overview

The 2017 tax reform act (the Act) significantly limited the ability of taxpayers to deduct trade or business expenses for meals, entertainment, and certain employee fringe benefits.  For example, the Act generally disallows deductions for entertainment expenses, removes the de minimis fringe benefit exception to the 50% deduction disallowance for meal expenses, and disallows deductions for providing qualified parking and other transportation fringe benefits to employees and for paying or reimbursing most employee commuting expenses. With year-end approaching, taxpayers should review their treatment of meal, entertainment, and fringe benefit expenses for compliance with the new rules. 

The takeaway

The Act imposes significant new restrictions on deducting expenses for meals, entertainment, and fringe benefits.  The interim guidance in Notice 2018-76 and Notice 2018-99 is helpful, but many questions remain unanswered.

With year-end approaching, taxpayers should review their treatment of meal, entertainment, and fringe benefit expenses for compliance with the new rules.  Employers that provide qualified parking should use their best efforts to determine a reasonable allocation method, perhaps using statistical sampling, and document the method.  Employers that provide employee meals and/or employee eating facilities may wish to begin reviewing their policies.

Contact us

Christine Turgeon

Partner, Federal Tax Services Leader, PwC US

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