On September 29, 2020, Treasury and the IRS issued final regulations under section 274 of the tax code that address the deductibility of business meal and entertainment expenses.

Before 2018, taxpayers generally could deduct 50% of client entertainment expenses if the entertainment was preceded or followed by "substantial and bona fide business discussions," as well as 50% of business meal expenses. Taxpayers also generally could deduct 100% of any meal expenses that were excluded from employee income as de minimis fringe benefits.

The Tax Cuts and Jobs Act eliminated the deductibility of entertainment expenses and generally extended the 50% deduction limitation for meals to de minimis fringe employee benefits. The final regulations provide guidance on these changes. The regulations clarify that "entertainment" does not include separately stated food and beverage costs. Separately stated food and beverage costs generally are subject to the 50% deduction limitation described above. However, non-separately stated food and beverage costs are treated as entertainment and thus are entirely nondeductible.

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