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Is The Cohan Rule Back For Business Meals?

Is The Cohan Rule Back For Business Meals?

Background – In a very business friendly transitional guidance (Notice 2018-76) on the deductibility of business meals, the IRS has announced that taxpayers generally may continue to deduct the food and beverage expenses associated with operating their trade or business. Under this notice, taxpayers may deduct 50 percent of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

Notice 2018-76 States: “The Act did not change the definition of entertainment under Sec. 274(a)(1); therefore, the regulations under Sec. 274(a)(1) that define entertainment continue to apply. The Act did not address the circumstances in which the provision of food and beverages might constitute entertainment. However, the legislative history of the Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business. See H.R. Rep. No. 115-466, at 407 (2017) (Conf. Rep.)”.

Thus it appears the IRS is taking the position that business meals are not entertainment and if not entertainment then the deduction for businesses meals may be open for estimating based upon the Cohan rule. For additional discussion on this subject see the attached article co-authored by Gary McBride, CPA, JD, LL.M (Taxation) and Philip Storrer, CPA, MBA (taxation) both professors emeritus from California State University, East Bay. Permission to use the article PDF graciously granted by Tax Analysts and Tax Notes.       

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Philip Storrer

Philip Storrer

Philip P Storrer is a Certified Public Accountant (CPA) practice based in Discovery Bay, CA. Philip P Storrer can assist you with your tax preparation, planning, bookkeeping, and accounting needs.

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