When the Tax Cuts and Jobs Act was signed into law at the end of 2017, Congress made an error in the law when they disallowed as a deduction business entertainment deductions (their actual goal). With all the craziness and stress of that time, they unintentionally also made most business meal expenses nondeductible (driving the whole tax community insane.) After they realized what they had done, months have gone by with no technical corrections or other ways to make the old deduction standard of business meals allowable under tax reform.
The first ray of hope came when The Bradford Tax Institute asked the House Committee on Ways and Means the following:
We asked the House Committee on Ways and Means what it thought happened to tax deductions for business meals with clients and prospects.
Our question. "We just want to confirm that the TCJA's disallowance of entertainment as understood by the Ways and Means Committee included the disallowance of client and prospect meals and that there is no plan to change this."
Committee response. "The focus of the change in the TCJA is on entertainment expenses, with business meals subject to separate rules that were not modified. There are no plans for changes.
Further guidance will be provided in the ordinary course, including through regulations."
Obviously, the response did not directly answer the question, but it did lay down two possible paths on how business meals with clients and prospects will become deductible without modification of the tax code.
Path 1. Ordinary Course The ordinary course means what the Joint Committee on Taxation will say in its upcoming Blue Book explanations of the TCJA about business meals with clients and prospects.
Earlier we noted that Veena Murthy, legislative counsel for the Joint Committee on Taxation, stated that the 50 percent deduction for meals is still the law and that the new prohibition is that meals considered entertainment are no longer deductible.
Path 2. Regulations For a glimpse of how the IRS might approach the regulations, examine the AICPA's recommendations.
We briefly highlight two of the recommendations below. AICPA recommendation to the IRS: Clarify that under the TCJA, business meals with clients and prospects at restaurants are deductible, subject to the 50 percent cut. AICPA recommendation to the IRS: Clarify that under the TCJA, business meals with clients and prospects in a restaurant before, after, or during a sporting or entertainment event, whether inside or outside the venue, are deductible, subject to the 50 percent cut.
We don't know if the IRS will follow the AICPA recipe for deducting client and business meals.
We don't know what the Joint Committee on Taxation will say about business meals with clients and prospects in its Blue Book explanation of the TCJA.
We do know that both the House Ways and Means Committee and the Joint Committee on Taxation don't want to have the TCJA disallow tax deductions for business meals with clients and prospects.
You have to take that as good news, albeit not in any way tax code definitive. As things stand now, hope that you'll find certainty that business meals with clients and prospects are deductible after the TCJA.
