Are Restaurant-Provided Employee Meals Impacted by the Tax Cuts & Jobs Act (TCJA) Meals and Entertainment Limitations?

Prior to the 2017 passage of the TCJA tax reform act, it was a common practice in the restaurant trade for restaurant employers to provide their employees with meals on days that the employees worked in the restaurant. Under prior law, businesses were entitled to a 50% deduction for expenses related to business meals and entertainment and these so-called “shift meals” were not considered taxable income to the employee (pursuant to Internal Revenue Code Section (IRC) 119 and 132). Additionally, prior to the TCJA, IRC section 274(n)(2), allowed the employer to deduct 100% of the cost of these meals.

However, the TCJA eliminated the 50% deduction for entertainment expenses and created confusion over the treatment of certain business meals, including whether the cost of employer provided shift meals are still 100% deductible.

On October 3, 2018, the IRS attempted to clarify some of the confusion with the issuance of Notice 2018-76. Unfortunately, the IRS notice did not address the treatment of meals provided to restaurant employees.  However, on December 20, 2018, the Joint Committee on Taxation’s Blue Book was issued, providing valuable information on many of the tax changes implemented by the TCJA, including the treatment of meals provided to restaurant employees.

Specifically, page 186 of the Blue states “Other exceptions from the 50-percent deduction limit include exceptions for food or beverage expenses excludable from the gross income of the recipient under section 132(e) (relating to de minimis fringes) . . .”

This statement is further amplified by the referenced footnote, referring to The Tax Reform Act of 1996.

Footnote 940 of the Blue Book states “The legislative history to the Tax Reform Act of 1986 (Pub. L. No. 99-514) further provides that a restaurant or catering firm may deduct 100 percent (rather than the 80-percent limitation that would otherwise have applied under the Tax Reform Act of 1986) of its costs for food and beverage items, purchased in connection with preparing and providing meals to its paying customers, that are consumed at the worksite by employees of the restaurant or caterer. Conference Report to accompany H.R. 3838, Tax Reform Act of 1986, H.R. Rep. No. 99-841, September 18, 1986, p. II-25. See also Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (JCS-10-87), May 1987, p. 68, clarifying that this exception only applies to employees who work in the employer's restaurant or catering business.”

Accordingly, this latest Blue Book explanation, clarifying that 100% of the costs related to pre-shift, during work, and post shift meals (provided on-site by the employer to its employees) is still deductible, is a welcome New Year’s gift to restaurant operators and their tax service providers.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}