Regulations on ME expense deductions finalized with little change

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October 2020

Overview

The 2017 tax reform act significantly limited the trade or business expense deduction for meals and entertainment by generally disallowing deductions for business entertainment expenses and removing the de minimis fringe benefit exception to the 50% deduction disallowance for meal expenses, effective for expenses paid or incurred after 2017.  The IRS and Treasury have finalized proposed regulations published in February 2020 interpreting these rules, with few changes. 

The takeaway

The final regulations make few changes to the proposed regulations and the interim guidance of Notice 2018-76.  The change to the rules for amounts treated as compensation to an employee or includible in the income of a non-employee mitigates a harsher rule in the proposed regulations and aligns these final regulations with other Section 274 regulations interpreting those disallowance exceptions.

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Christine Turgeon

Partner, Federal Tax Services Leader, PwC US

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