The business meal expense deduction after the TCJA

By Claire Y. Nash, CPA, Ph.D., and James Parker, J.D., M.L.T.



  • Some taxpayers have wondered whether client-related business meal expenses remain deductible after the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, which generally repealed the deduction for entertainment expenses.
  • One reading of current law is that because business meals are a form of entertainment, they are no longer deductible. Notably, the Joint Committee on Taxation in its Bluebook for the TCJA indicated that business meals generally cannot be deducted.
  • On the other hand, the conference committee report for the TCJA expressly indicates that Congress intended business meal expenses to remain 50% deductible.
  • To address the uncertainty in this area, the IRS has provided interim guidance. Under Notice 2018-76, taxpayers generally may deduct 50% of client-related business meals if they meet certain requirements.
  • Under the notice, to be deductible, food-and-beverage expenses incurred at or during an entertainment event must be purchased separately from the entertainment, or the cost of the food and beverages must be stated separately from the entertainment's cost on one or more bills, invoices, or receipts.
  • The IRS plans to issue regulations on this topic. Notice 2018-76 states that until the IRS does so, taxpayers can rely on the guidance in that notice in determining the deductibility of business meal expenses.

Uncertainty continues regarding whether food-and-beverage expenses incurred in association with a taxpayer's trade or business are "entertainment" and therefore not deductible following the passage of the law known as the Tax Cuts and Jobs Act (TCJA).1 Although the definition of entertainment is not provided in the statute, Treasury and the IRS have consistently viewed and treated food-and-beverage expenses as entertainment, and the courts have consistently applied that interpretation of the statute in their decisions.

In October 2018, the IRS issued Notice 2018-76 to announce its intent to publish proposed regulations under the amended statute and provide interim guidance on the deductibility of business meal expenses under Sec. 274, as amended by the TCJA. Taxpayers are still waiting for Treasury to issue proposed regulations. Without them, taxpayers continue to question whether business meal expenses are deductible and call for Treasury regulations clarifying the effect of the TCJA on the business meal expense deduction. Taxpayers should continue to rely on Notice 2018-76 as substantial authority for their business meal expense deductions until proposed regulations are issued. In the absence of more definitive guidance, the Treasury notice is substantial authority under Sec. 6662.


As taxpayers continue to debate whether business meals are deductible under Sec. 274 as amended, some argue that the statute is clear and unambiguous in its intent to include meals as entertainment and that, without further congressional action, business meal expenses are nondeductible. Others argue that congressional intent can be construed from House and Senate comments contained in the TCJA conference committee report.2 Until Treasury issues regulations on the matter, taxpayers weighing whether the authority of Notice 2018-76 is sufficient should consider it substantial authority that resolves the matter in the interim.3 Taxpayers should not consider the absence of more authoritative administrative guidance from Treasury as an indication that they should forgo business meal expense deductions in the current and future periods.

To analyze the current standing of the business meal expense deduction, this article will first review the history of Sec. 274, then examine the TCJA amendments to that provision, and finally discuss the IRS's interim guidance on the deductibility of business meals.

Statutory history

Prior to 1962, when Sec. 274 was enacted, where a "business purpose, however slight," existed, entertainment expenses generally were fully deductible if they were ordinary and necessary business expenses.4 As originally enacted, Sec. 274(a) referred exclusively to entertainment, amusement, and recreation and did not mention food, beverages, or meals. Specifically, Sec. 274(a) at that time provided in part that:5

(1) In general. No deduction otherwise allowable under this chapter shall be allowed for any item—

(A) Activity. With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation ...

Business meals appeared in the original exceptions to Sec. 274(a) outlined in Sec. 274(e), reflecting that food and beverages broadly fall within the entertainment category. Sec. 274(e) as originally enacted read:

(e) Specific Exceptions to Application of Subsection (a).— Subsection (a) shall not apply to—

(1) Business Meals.—Expenses for food and beverages furnished to any individual under circumstances which (taking into account the surroundings in which furnished, the taxpayer's trade, business, or income-producing activity and the relationship to such trade, business, or activity of the persons to whom the food and beverages are furnished) are of a type generally considered to be conducive to a business discussion. [Emphasis added]

The Senate Finance Committee report accompanying the Revenue Act of 1962 clearly contemplated that food-and-beverage expenses are entertainment expenses. In its comments, the Finance Committee indicated that " 'entertainment' includes any business expense incurred in the furnishing of food and beverages."6 These comments make it clear that in 1962 Congress regarded business meals as entertainment, resulting in the need for Sec. 274(e) to exclude them from the disallowance provision in Sec. 274(a).

Under Sec. 274(e) as originally enacted, then, business meals were deductible if they met the ordinary and necessary business expense test under Sec. 162.7 Although the exception for business meals under Sec. 274(e)(1) was repealed in 1986,8 its inclusion in the statute as originally enacted reflected the view that entertainment expenses include business meals and therefore necessitated that they be among the exceptions to Sec. 274(a) at the time the statute was enacted.

The exclusion under Sec. 274(e) as originally enacted meant that business meal expenses did not have to meet the "business connection" test required to deduct other entertainment expenses.9 In 1986, Congress amended Sec. 274 to tighten the deduction rules for business meals.10 In its explanation of the Tax Reform Act of 1986, the Joint Committee on Taxation (JCT) indicated that business meals are entertainment. The following excerpt from the 1986 JCT report reveals that Congress continued to consider business meals to be entertainment under Sec. 274:11

Under prior law, expenses for food and beverages were deductible, without regard to the "directly related" or "associated with" requirement generally applicable to entertainment expenses, if the meal or drinks took place in an atmosphere conducive to business discussion. There was no requirement under prior law that business actually be discussed before, during, or after the meal. ­[Emphasis added]

The comments from the JCT's report clearly show that the statute includes business meal expenses as entertainment and that these expenses have been historically treated as such.

TCJA changes to Sec. 274

Prior to the amendments enacted by the TCJA, Sec. 274(a) allowed taxpayers to deduct 50% of "entertainment, amusement, or recreation" expenses, when the taxpayer established "that the item was directly related to, or, in the case of an item directly preceding or following a substantial and bona fide business discussion . . . , that such item was associated with, the active conduct of the taxpayer's trade or business." In addition, Sec. 162(a) requires that business meal expenses must be ordinary and necessary.

The TCJA eliminates the "directly related or associated with" tests in Sec. 274(a) and completely disallows entertainment, amusement, or recreation expenses, but it appears to retain the business meal expenses deduction in Sec. 274(k).12 It is the retention of Sec. 274(k) that has caused taxpayers to argue that business meal expenses remain deductible despite the elimination of the deduction for "entertainment expenses." Post-TCJA Sec. 274(k) remains in the statute and continues to read as follows:

    (k) Business meals.

    (1) In general. No deduction shall be allowed under this chapter for the expense of any food or ­beverages unless

        (A) such expense is not lavish or extravagant under the ­circumstances, and

        (B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages. ­[Emphasis added]

Taxpayers that disagree argue that Sec. 274(k) is not an allowance provision but rather a disallowance provision, and call for guidance from Congress and Treasury to clarify whether business meal expenses are deductible subject to the requirements in Sec. 274(k). Proponents for the business meal expense deduction argue that if forthcoming guidance is consistent with congressional intent found in the House bill for the TCJA and the Senate amendment, business meal expenses that meet the provisions in Sec. 274(k) remain deductible post-TCJA.

Congressional intent

House bill

The House bill for the TCJA provided that no deduction is allowed with respect to an activity generally considered to be entertainment, amusement, or recreation. Thus, the House provision would have repealed the rule permitting deduction of entertainment expenses that are directly related to or, in certain cases, associated with the active conduct of the taxpayer's trade or business (and the provision that limits the deduction of the expenses to 50%). However, the bill would have allowed taxpayers to still deduct 50% of the food-and-beverage expenses associated with operating their trade or business (e.g.,meals consumed by employees on work travel), the conference committee report notes.13 Thus, it appears that under the proposed House statutory language changes, a deduction for business meal expenses would continue to be allowed under Sec. 274 post-TCJA.

Senate amendment

The amended Sec. 274 provision put forth by the Senate largely followed the language of the House bill.14 The Senate amendment also provided that taxpayers may still generally deduct 50% of the food-and-beverage expenses associated with operating their trade or business (e.g.,meals consumed by employees on work travel).15 The retention of Sec. 274(k) in the amended statute effectively adopts the deduction provisions in the House bill and Senate amendment.

Joint Committee on Taxation

A report issued by the JCT on Feb. 7, 2018, complicates the issue, however. In a footnote, the JCT interpreted amended Sec. 274 as prohibiting deductions for all entertainment expenses, including business meals.16 The JCT's interpretation exacerbated the uncertainty and confusion among taxpayers, thus necessitating that Treasury issue administrative authoritative guidance. Although the JCT's interpretation arguably is consistent with the plain language of Sec. 274(a) as amended and the broad interpretation that food-and-beverage expenses are "entertainment" as applied in numerous past court decisions,17 it does not align with the intent explicitly expressed in the House and Senate comments in the conference report.

When there is no evidence that Congress intended a statute to mean anything other than the language's naturally broad and inclusive meaning, the Treasury and courts must give proper weight to the words Congress chose.18 The courts historically treated business meal expenses as entertainment expenses and generally agreed that business meal expenses must meet either the related to or associated with tests in Sec. 274(a)(1)(A) (before amendment by the TCJA) and the requirements of Sec. 274(k). The courts have treated business meal expenses as entertainment expensesunder both Sec. 274(a) and (k), and found that Sec. 162 does not disallow the deduction for business meal expenses if they are ordinary and necessary business expenses.

AICPA's proposed administrative guidance

In April 2018, the AICPA issued a comment letter requesting immediate guidance from Treasury regarding the effect of changes to Sec. 274 enacted in the TCJA. The AICPA informed Treasury that taxpayers "require clarification in order to . . .  revise their accounting systems and expense and reimbursement policies" to ensure compliance with the tax law. With respect to "client-related business meals," the AICPA recommended that Treasury and the IRS:19

confirm that business meals, which (1) take place between a business owner or employee and a current or prospective client; (2) are not lavish or extravagant under the circumstances; and (3) where the taxpayer has a reasonable expectation of deriving income or other specific trade or business benefit from the encounter, are not disallowed under section 274(k) . . .  [and] provide guidance stating that business meals, which are separately charged while a taxpayer or an employee of the taxpayer attends an entertainment event, remain 50% deductible under the rule of sections 274(n) and 162. [Emphasis in original]

Although the American Bar Association (ABA) usually comments on tax matters causing uncertainty among taxpayers, the ABA's tax section did not include guidance regarding the deductibility of business meals as a priority item in its May 24, 2018, letter of recommendations to Treasury for 2019 priority guidance.

Administrative guidance

In October 2018, the IRS announced in Notice 2018-76 that it intended to issue regulations under Sec. 274, which will include guidance on the deductibility of expenses for certain business meals. In the interim, the IRS directs taxpayers to rely on the information contained in the notice for guidance. Notice 2018-76 provides five criteria for deductibility of business meal expenses. In particular, taxpayers may deduct 50% of an allowable business meal expense if:

  • The expense is an ordinary and necessary expense under Sec. 162(a) paid or incurred during the tax year in carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  • In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

Under the guidance in Notice 2018-76, it does not appear that business meal expenses must meet the "directly related to" or "associated with" requirements or the "business discussion" requirement previously included in Sec. 274(a). Whether taxpayers that deduct business meal expenses can rely on the guidance in Notice 2018-76 to avoid understatement penalties depends on whether the notice provides substantial authority for taking the deduction.

Substantial authority of Notice 2018-76

Is Notice 2018-76 sufficient substantial authority for determining the deductibility of business meal expenses? When the treatment is unclear under the statute, taxpayers' tax positions must be supported by "substantial authority." Regs. Sec. 1.6662-4(d)(3)(i) explains what constitutes "substantial authority":

Evaluation of authorities. There is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting contrary treatment. All authorities relevant to the tax treatment of an item, including the authorities contrary to the treatment, are taken into account in determining whether substantial authority exists. The weight of authorities is determined in light of the pertinent facts and circumstances in the manner prescribed by paragraph (d)(3)(ii) of this section. There may be substantial authority for more than one position with respect to the same item. Because the substantial authority standard is an objective standard, the taxpayer's belief that there is substantial authority for the tax treatment of an item is not relevant in determining whether there is substantial authority for that treatment. [Emphasis added]

Regs. Sec. 1.6662-4(d)(3)(ii) provides guidance for determining the weight that should be given to an authority in an analysis of whether there is substantial authority for a particular tax position. The regulation, in part, reads:

Nature of analysis. The weight accorded an authority depends on its relevance and persuasiveness, and the type of document providing the authority. . . . There may be substantial authority for the tax treatment of an item despite the absence of certain types of authority. Thus, a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision.

Regs. Sec. 1.6662-4(d)(3)(iii) indicates that "notices, announcements and other administrative pronouncements published by the Service in the Internal Revenue Bulletin" are acceptable for purposes of determining whether there is substantial authority for the tax treatment of an item.

Therefore, for purposes of avoiding a penalty under Sec. 6662, Notice 2018-76 qualifies under the regulations to be used to support a claim of substantial authority for a taxpayer's deductions for business meal expenses until it is withdrawn or proposed regulations are issued. Because the IRS explicitly states in Notice 2018-76 that taxpayers can rely on the notice until proposed regulations are issued, it is unlikely that the IRS will take a position contrary to the guidance in the notice and challenge client business meal deductions that meet the requirements outlined in it.

How to proceed

The TCJA amended Sec. 274 to disallow a deduction for expenses with respect to entertainment, amusement, or recreation. Because the TCJA does not specifically address the deductibility of expenses for meals that are often incurred by taxpayers in conjunction with trade or business activities, taxpayers are uncertain whether business meal expenses are entertainment that, under strict interpretation of the amended statute, would not be deductible under Sec. 274(k). The uncertainty surrounding the effect of the TCJA changes to Sec. 274 caused taxpayers and tax professionals to question to what extent business meal expenses would be deductible for tax year 2018 and thereafter. In a request for immediate guidance, the AICPA suggested treatment that would allow separately charged business meal expenses to retain their deductibility.

In response to this request and taxpayers' concerns regarding the effect of the TCJA on the deductibility of business meal expenses under Sec. 274, Treasury announced that regulations are forthcoming and until the proposed regulations are published, taxpayers can rely on Notice 2018-76 for interim guidance about treatment under Sec. 274 of business meal expenses. Under Notice 2018-76, generally 50% of client-related business meal expenses that are separately identified and separately stated and meet the business-connection provisions under Sec. 162 are deductible.  


1P.L. 115-97. The amendments to Sec. 274 affecting employer-provided meals are not addressed in this article. The TCJA also amended Sec. 274 to reduce the deduction for employer expenses for the cost of food and beverages that are (1) provided to an employee by an employer, and (2) excluded from taxable income of the employee as a de minimis fringe benefit. This includes business meals provided to employees on the business premises for the convenience of the employer. Fifty percent of these costs remain deductible by the employer through 2025. After 2025, no deduction is ­allowed for these costs.

2H.R. Conf. Rep't No. 115-466, 115th Cong., 1st Sess. (2017).

3See Regs. Sec. 1.6662-4(d)(3)(iii).

4S. Rep't No. 1881, 87th Cong., 2d Sess. 25 (1962).

5The Revenue Act of 1962, P.L. 87-834, §4, added Sec. 274 for tax years ending after Dec. 31, 1962.

6S. Rep't No. 1881, 87th Cong., 2d Sess. 27 (1962).

7Id. at 36.

8The Tax Reform Act of 1986, P.L. 99-514, §142(a)(2)(A), deleted paragraph (e)(1).

9Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (JCS-10-87), at 61 (May 15, 1987).

10The Tax Reform Act of 1986 also reduced to 80% the amount of otherwise allowable deductions for business meals. In 1993, the Omnibus Budget Reconciliation Act of 1993, P.L. 103-66, §13209(a), further reduced the amount of the otherwise allowable deduction to 50%, effective for tax years beginning after Dec. 31, 1993.

11Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (JCS-10-87), at 58 (May 15, 1987).

12See note 1, above.

13H.R. Conf. Rep't 115-466, 115th Cong., 1st Sess., at 405-406 (2017).

14Id. at 406.

15Id. at 407. The Senate amendment further provided that "[f]or amounts incurred and paid after December 31, 2017 and until December 31, 2025, the provision expands this 50 percent limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes and for the convenience of the employer. Such amounts incurred and paid after December 31, 2025 are not deductible," according to the conference committee report.

16Joint Committee on Taxation, Overview of the Federal Tax System as in Effect for 2018 (JCX-3-18) at 13, n. 44 (Feb. 7, 2018).

17See, e.g., Weaver, T.C. Summ. 2018-40; Contreras, T.C. Memo. 2007-63; Matlock, T.C. Memo. 1992-324; Ainsworth, T.C. Memo. 1987-398; Moylan, T.C. Memo. 1968-15; and L.R. Schmaus Co., T.C. Memo. 1967-197.

18The explanation of the court in BMC Software, Inc., 780 F.3d 669 (5th Cir. 2015), is indicative of the treatment generally afforded federal income tax statutes.

19AICPA, "Request for Immediate Guidance Regarding IRC Section 274" (April 2, 2018). The AICPA also requested authoritative guidance on the deductibility of the following expenses: employer-provided business meals, employer-provided snacks and other food products, and employer-provided meals at employer-hosted recreational, social, and similar activities. The AICPA comment letter is available at



Claire Y. Nash, CPA, Ph.D., is a professor of accounting at Palm Beach Atlantic University in West Palm Beach, Fla. James Parker, J.D., M.L.T., is a professor of business law at Christian Brothers University in Memphis, Tenn. For more information about this article, contact


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