by April K. Thiel, CPA, Gordon Advisors P.C., 248 952 0200
In recent tax news, the owner of the Boston Bruins petitioned the Court to dispute claims by the IRS relating to whether or not the team can deduct 50% or 100% of meals provided while on the road at away games. Typically a taxpayer is limited to deducting 50% of the total meal expense. The IRS is trying to limit the Bruin’s deduction for these away meals to 50% as well. The Bruins on the other hand, believe the meals qualify for 100% deduction. They will face off in Tax Court.
While this particular case relates to professional sports, this topic is not unusual amongst the majority of business owners. Many businesses provide meals occasionally to their employees. The ability to deduct these costs fully and also exclude from the employees’ wages, depends on the facts and circumstances of the scenario. They can be fully deducted and many times excluded from the employees’ wages if they are considered de minimus. While these exceptions to the 50% general rule are not all inclusive, they do represent the most common de minimus exceptions.
Meals on your business premises
For this exclusion, the employee’s place of work is the business premises. The Bruins are arguing that while they are on the road for away games, the hotels serve as their business premises.
Meals provided for the employer’s convenience
For this exclusion, the meals served at the employer’s premises must be for the employer’s convenience. Great examples include companies wanting their employees to stay and work overtime, wanting them to stay on the premises so they can work instead of incurring travel time to restaurants, etc. In the Bruin’s case, while not specifically stated, it is assumed that staying at the hotel for dinner was a way to keep the team together and focused as opposed to a night out on the town before games.
Meals Excluded for all employees if excluded for more than half
If more than half of your employees who are furnished meals on your business premises are furnished the meals for your convenience, you can treat all meals you furnish to employees on your business premises as furnished for your convenience.
Even if the outcome shows that the Tax Court sides with the Bruins, just like any other business, substantiation is still required. The argument the Bruins are using is somewhat considered atypical. We will have to wait and see which side comes out victorious. This area of tax is not always black and white, if you have questions, consult with your tax advisor.