Tax Court Clarifies Rules for Employer-Provided Meal Expenses

Synopsis

The Boston Bruins are one of the most accomplished teams in the National Hockey League, and now they can add one more win – against the IRS in Tax Court.

The Tax Court allowed the Bruins to deduct 100 percent of meal expenses for players and staff at hotels when the team was playing games away from Boston. In reaching this decision, the Court determined that the hotel was serving as a temporary business location of the employer.

Issue

The Tax Court judge outlined many of the specific facts related to a traveling professional sports team.  The court found significance in the fact that the NHL required the team to play the away games and, in order for the players to perform at their best, the team leased hotel rooms and conference rooms well in advance of a game.  While staying at the hotel, the team performed numerous business activities such as strategy meetings, coaching sessions, and physical therapy.  The players were also required to eat together during mealtime before away games to maximize their game-time performance.  During these meals, players would meet with coaches, review game films, discuss strategy, and prepare for the game.  The team penalized players who did not attend the required meals.

Ordinarily, meals provided to employees are subject to a 50% deduction limitation. The employer can avoid this limitation if the meals qualify as a “de minimis fringe benefit” under Code § 132(e).  To qualify, a taxpayer must establish that the meals—among other things—were provided in a facility on or near the employer’s business premises and are provided immediately before, after, or during the employees’ workday.  In the Bruins’ case, the Tax Court held that the team performed so much business activity in the hotel and conference rooms, and that activity related to the business of winning hockey games, the rooms essentially became a temporary work location.  Therefore, meals provided there qualified as de minimis fringe benefits for the players and staff because they were provided for the convenience of the employer.

What Does CohnReznick Think?

The decision may apply in other situations where the travel is necessary for the employer’s business and a hotel room can become a temporary work location. While it is not clear whether the IRS will follow this decision, however, companies should consider applying this decision in similar fact patterns.   

Contacts

For more information, please contact Richard Shevak, Principal, National Tax Services, at [email protected] or at 862-245-5029.

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