The Internal Revenue Service just released Notice 2021-25, which provides guidance related to the temporary increased deduction for food or beverages purchased from a restaurant, as was added by the Taxpayer Certainty and Disaster Relief Act of 2020 (“TCDRA”).
Prior to TCDRA, businesses were only allowed to deduct 50 percent of the cost of eligible meals. The TCDRA now allows food or beverages provided by a restaurant to be 100 percent deductible for amounts paid or incurred after December 31, 2020 and prior to January 1, 2023.
Notice 2021-25, defines a restaurant as, a business that prepares and sells food or beverages to retail customers for immediate consumption, whether or not on the restaurant premise. However, the Notice specifically excludes any business that sells pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, beer wine or liquor store, drug store, convenience store, newsstand, a vending machine or kiosk from the definition of restaurant.
In addition, businesses may not treat an employer operated eating facility, that is excluded from gross income or treated as a de minimis fringe benefit, as a restaurant.
In order for the food and beverages to be 100 percent deductible, the expenditures must continue to meet the existing rules which state the expenditure is not lavish and the business owner (or an employee of the business) is present at the furnishing of the food or beverages.