John B. Hoover is Partner in Holland & Knight's Washington D.C. office
The National Business Aviation Association (NBAA) on Nov. 5, 2018, filed the attached comments with the Internal Revenue Service (IRS) regarding IRS Notice 2018-76, which generally permits the deduction of business meals and implicitly assumes that business meals are not subject to the entertainment disallowance in IRC § 274(a). The NBAA also posted a brief article to its website announcing the issuance of the comments. (John Hoover, a member of the NBAA Tax Committee, assisted in drafting these comments.)
The nonentertainment classification of meals is important for business aviation, because it is common for executives traveling on a business aircraft to meet over a meal. The concern raised by the elimination of the business entertainment deduction under the Tax Cuts and Jobs Act was that if a meal were classified as an entertainment activity, then the flight to the meal might be classified as a nondeductible entertainment activity. By permitting the deduction of business meals, the IRS Notice supports the conclusion that flights to meetings held over a meal will not be subject to the entertainment deduction disallowance.
The comments request that future proposed regulations explicitly state that meals are not considered an entertainment activity. Such a statement in the proposed regulations would be helpful to clarify that meals are not entertainment activities. This clarification would be helpful both for business meals and for nonbusiness meals, which could be regarded as personal nonentertainment activities.
The costs of business meals remain subject to a 50 percent deduction limitation under IRC § 274(n). For the sake of clarity, the comments request that the proposed regulations provide that the 50 percent deduction disallowance does not apply to transportation costs, such as the costs of a flight to a meal. This conclusion is directly supported by legislative history and should not be controversial.
For further information or guidance on how this may impact your business specifically, contact the author.
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