Tax Court allows full meal deduction for NHL team’s away games

By Sally P. Schreiber, J.D.

Pregame meals provided to Boston ­Bruins players and personnel before away games qualify as a de minimis fringe benefit under Sec. 274(n)(2)(B) and are not subject to the 50% limitation under Sec. 274(n)(1), the Tax Court held (Jacobs, 148 T.C. No. 4 (2017)). The petitioners, Jeremy and Margaret Jacobs, co-own the Boston Bruins National Hockey League (NHL) team through two S corporations. The IRS had disallowed 50% of the Bruins' deduction for expenses for meals provided to the team's employees when traveling to away games, which resulted in deficiencies of $45,205 and $39,823 in the Jacobses' 2009 and 2010 federal income taxes.

The court explained that the NHL requires its teams to play half of their yearly games away from home and has detailed rules governing travel to those games, and the rules in the league's collective bargaining agreement require teams to arrive the night before a scheduled game when traveling to a location would require a plane trip of longer than 150 minutes. NHL teams keep all of the ticket sales from their home games and none from away games; furthermore, they incur various penalties if they do not attend an away game.

To accommodate this schedule, the Bruins contract with hotels for lodging and food in cities where the team plays away games. Under these arrangements, the hotels provide banquet or meal rooms where they serve the pregame meals and snacks. These meal facilities are open to all traveling staff, but players' attendance is mandatory (players are required to attend breakfast and lunch when they have a night game, or brunch when they play an afternoon game). The Bruins order the same type of food whenever the team is away to avoid causing players upset stomachs and also order food that meets players' specific nutritional requirements.

The court examined Sec. 274(n)(2)(B), which provides that the 50% limitation does not apply if a meal qualifies as a de minimis fringe benefit under Sec. 132(e). Sec. 132(e)(2) addresses whether an employer's operating an eating facility qualifies as a de minimis fringe benefit. The court found, as a preliminary matter, that the meals would only qualify if the team provided them in a nondiscriminatory manner. The court determined that because all staff traveling with the team could use the meal facilities, the team provided the meals in a nondiscriminatory manner.

The court further found that employee meals provided in a nondiscriminatory manner would only qualify as a de minimis fringe if (1) the eating facility is owned or leased by the employer; (2) the facility is operated by the employer; (3) the facility is located on or near the business premises of the employer; (4) the meals furnished at the facility are provided during, or immediately before or after, the employee's workday; and (5) the annual revenue derived from the facility normally equals or exceeds the direct operating costs of the facility (the revenue/operating cost test).

The IRS conceded that the meals met the fourth requirement, and the court concluded that the Bruins met the other requirements. The court found that the first requirement was met because the team in substance leased the meeting rooms for the meals. According to the Tax Court, the team met the second requirement because it contracted with the hotels to provide the meals, and, under the regulations, a taxpayer can meet this requirement by contracting with another to operate an eating facility for employees.

With respect to the third requirement, the court stated that, based on its precedent, an employer's business premises is a place where employees perform a significant portion of their duties or where the employer conducts a significant portion of business. After a detailed consideration of the "unique nature of the Bruins' business," the court found that this requirement was met because the hotels the team stayed at were "where a significant portion of the traveling hockey employees' responsibilities and the Bruins' business is conducted."

Under the regulations, an employer is considered to have met the revenue/operating cost test if the employer can reasonably determine that the meals were excludable from the employees' income under Sec. 119. Also, to be excludable, the meals must be furnished for the employer's convenience on the employer's business premises. The court found that based on the facts in the case, the team met these two requirements.

Therefore, the court held that the provision of pregame meals to the Bruins' traveling employees qualifies as a de minimis fringe benefit and is not subject to the Sec. 274(n)(1) 50% limitation.

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