Business meal deductions after the TCJA

By Dan M. Smolnik, J.D.



  • The legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, eliminated the general deduction of business entertainment expenses under Sec. 274(a). The TCJA mostly left intact, however, the deductibility of food and beverage expenses as a business expense (generally, at 50% of the expense amount). But because of a long-standing understanding and practice of treating business entertainment and meals as congruent, practitioners sought guidance on separating the two.
  • The IRS provided the sought-after guidance in October 2020. Taxpayers and their advisers must carefully follow the rules set out in the final regulations for substantiating business food and beverage expenses to ensure a deduction is allowed for the expenses.
  • To substantiate business food and beverage expenses, adequately documenting the expenses remains paramount. The facts about business meal expenses that must be documented are slightly different for such expenses paid or incurred in the taxpayer's "tax home" versus those paid or incurred while traveling on business "away from home."

The business meal tax deduction has been debated for decades, the subject of presidential ire and of incremental diminution. In just the past few years, uncertainty has reigned regarding the availability and requirements for the business meal deduction because of its abrupt separation from its historic tax deduction counterpart — the business entertainment expense deduction. However, with the adoption of final regulations in 2020, the IRS has provided guidance on deducting the costs of business meals separately from entertainment. Since then, the deduction has even been temporarily restored to its former magnitude, allowing the full cost of such meals to be deducted under certain circumstances.

This article examines the history of the deduction and considers the 2020 final regulations and their implied separate treatment of business meals consumed while traveling away from the taxpayer's home. Also, with the rapidly rising return of the dine-in restaurant meal as pandemic restrictions in many areas across the United States ease,1 this article provides a framework by which taxpayers may effectively document and substantiate their claims to the business meal deduction.

A brief history of the business meal tax deduction

The deductibility of business meals and other expenses is among the most contentious issues in tax law. Business travel expenses deducted under Sec. 274(d) were 20% of all the business tax issues litigated in cases brought in federal courts during a 2019-2020 one-year period and reviewed by the national taxpayer advocate (NTA). Combined with issues of substantiation and deductibility of other business expenses under Sec. 162, these were 53% of the issues litigated.2 It thus appears that taxpayer confusion3 over how and when business tax deductions may be claimed is likely the catalyst for many disputes with the IRS.4 This article attempts to help taxpayers avoid an adverse encounter with the tax authorities with respect to business meals.5

The business meal deduction was cut to 80% of the cost in 1986,6 then to 50% of the cost, effective Jan. 1, 1994.7 (For 2021 and 2022, the deduction is 100% for meals purchased from a restaurant.8) Over 56 years after President John F. Kennedy denounced the tax deductibility of business "expense account living,"9 Section 13304 of the law known as the Tax Cuts and Jobs Act (TCJA)10 effectively eliminated from Sec. 274 the deduction for most entertainment expenses, without regard to how the entertainment may relate to a business relationship or activity. Because the TCJA did this by simply striking references to the most common allowable entertainment expenses from Sec. 274, the historic practice of treating meals and entertainment as largely interchangeable caused some confusion. Rumors soon abounded that the IRS would treat "business meals" as a form of entertainment and they too would be nondeductible.11

The confusion signaled two important issues. First, the long-standing legal overlap between a business meal and business entertainment had, in fact, reflected the practical overlap between business meals and business entertainment. The line was blurred because, in this context, there was no line.12 The business meal has never been about acquisition of nutrition; it has only ever been about a shared experience. Second, Congress had failed to define "entertainment" as a concept separate from "meals" in the business context when it excised references to entertainment from Sec. 274. Because of the long practice of treating business meals and entertainment as merely different perspectives on the same transactions, removal of the entertainment deduction called into question the continued validity of the other.

IRS guidance

On Oct. 3, 2018, the IRS stepped into the information gap with Notice 2018-76, which provided interim rules until final regulations were issued. In February 2020, the IRS issued proposed regulations (REG-100814-19), and in October 2020 the IRS issued final regulations that obsoleted Notice 2018-76.

Entertainment definition in final regulations: Regs. Sec. 1.274-11(b)(1) of the final regulations, as had Notice 2018-76, incorporated the definition of entertainment found in Regs. Sec. 1.274-2(b)(1). Regs. Sec. 1.274-11(b)(1)(i) defines "entertainment" as "any activity which is of a type generally considered to constitute entertainment, amusement, or recreation," listing as examples "entertaining at bars, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips."

Under Regs. Sec. 1.274-11(b)(1)(ii), a taxpayer applies an "objective test" to evaluate whether an activity is "of a type generally considered to constitute entertainment." If, under the objective test, the activity is generally considered to be entertainment, it is entertainment for purposes of Sec. 274(a) and the regulations, regardless of whether it could be described as something other than entertainment and even if the expense relates to the taxpayer alone. The objective test precludes arguments that "entertainment" means only entertainment of others or that entertainment expenses should be treated as advertising or public relations expenses.

However, Regs. Sec. 1.274-11(b)(1)(ii) further provides that a taxpayer's trade or business is taken into consideration. For example, a theatrical performance is not entertainment for a professional theater critic attending the performance in a professional capacity, and a fashion show by a dress manufacturer to introduce its products to a group of store buyers generally would not constitute entertainment.

Meal expense deduction rules in final regulations: Under Regs. Sec. 1.274-12(a)(1), a taxpayer may deduct 50% of an otherwise allowable13 meal expense if:

  • 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; and
  • The food and beverages are provided to a taxpayer or a business associate.

In addition, 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. This rule may not be circumvented through inflating the amount charged for food and beverages.14

In the third requirement in the final version of Regs. Sec. 1.274-12(a)(1), the IRS made a critical change from the proposed regulations to the description of persons who are considered suitable recipients of tax-deductible business meals, adding "taxpayer" to that description. This change allows self-employed taxpayers to access the deduction.15

Business associate definition: For the definition of "business associate," the IRS inserted in Regs. Sec. 1.274-12(b)(3), nearly intact, the definition from Regs. Sec. 1.274-2(b)(2)(iii), which addressed the now-repealed "active conduct of business" requirement of Sec. 274(a) before its references to deductibility of entertainment expenses were eliminated by the passage of Section 13304(a) of the TCJA. Thus, as Regs. Sec. 1.274-2(b)(2)(iii) does, Regs. Sec. 1.274-12(b)(3) includes a taxpayer's employee within the scope of the business-associate requirement, thereby enabling tax-deductible business meals to include a mix of employees and customers. The relevant regulation section now reads:

Business associate. Business associate means a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer's trade or business such as the taxpayer's customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.16

Absent from the types of relationships that are at least nominally included within the scope of a "business associate" for purposes of the deduction are persons with whom a taxpayer is simply cultivating goodwill. For instance, a business person working to grow or maintain his or her name recognition and reputation within a community might routinely host meals with local business leaders with whom he or she does not expect ever to directly do business but who might eventually be in a position to refer someone else to him or her. It is not clear that the word "prospective" in the regulation saves such indirect relationships from exclusion from the defined category.17

Travel and nontravel meal expenses

Not amended by the TCJA were the rules for travel meal expenses. Nonetheless, the regulations consolidate the nontravel meal expense deduction rules with those for travel, underscoring that a deduction of the cost of meals purchased while traveling is subject to the heightened substantiation requirements of Sec. 274(d).

Definition of a travel meal: Sec. 274(d) disallows insufficiently documented deductions for meals while away from home, but neither the Code nor the regulations explain what the phrase "away from home" means for tax purposes. The Supreme Court took up the issue in Correll18and opined that the IRS's long-standing position, summarized initially as the overnight rule and later adopted as the "sleep or rest rule,"19 was legally valid. The sleep-or-rest rule disallows any deductions associated with business travel away from home unless the travel requires sleep or rest to meet the needs or exigencies of the taxpayer's employment.20

Thus, for purposes of deductions under Sec. 274(d), a taxpayer's tax "home" is the taxpayer's regular or principal (if more than one regular) place of business.21

Deductibility of travel meals: The regulations concerning travel meals apply the above three tests for deductibility of nontravel meals.22 They also apply the enhanced substantiation requirements of Sec. 274(d), which disallows any deduction for, among other things, meals as part of traveling expenses unless:

the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations.23

In Temp. Regs. Sec. 1.274-5T(b)(2), the IRS provides that for purposes of Sec. 274(d), in the case of expenses for travel, the taxpayer is only required to substantiate the amount, time, place, and business purpose of the expense. However, with respect to time, the taxpayer must substantiate the date of departure and return for the travel, and that with respect to place, the taxpayer must substantiate the destination or locality of the travel, by city or town or similar designation. The regulations further provide that the four elements must be substantiated "by adequate records or by sufficient evidence" that corroborates the taxpayer's own statement.24

Temp. Regs. Sec. 1.274-5T(a) states that the substantiation requirements of Sec. 274(d) supersede the judicial doctrine in Cohan, 39 F.2d 540 (2d Cir. 1930), under which, if a taxpayer provides evidence that an expense occurred, but not its exact amount, a court may estimate the amount of the expense and not disallow the entire deduction. Thus, if the IRS disallows a deduction for travel meals, and the taxpayer cannot provide adequate records or evidence to substantiate all the elements in Temp. Regs. Sec. 1.274-5T(b)(2), a court must uphold the disallowance of the entire deduction.

Documentation needed for travel and nontravel business meals deductions

Sec. 6001 imposes on taxpayers the duty to maintain records that support their tax positions. The regulations elaborate that a taxpayer "shall keep such permanent books of account or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax or information."25 In short, taxpayers must prepare and keep written records that support everything that appears on their federal tax returns.

The responsibility for documenting claims associated with the tax return rests exclusively on the persons whose names appear at the top of those returns. A taxpayer fails to maintain or produce such records at his or her own peril. Thus, the taxpayer must consider what records support a claimed deduction for a business meal that includes a taxpayer and a prospective customer of that taxpayer.

Nontravel business meals: First, the documentation must demonstrate compliance with the threshold requirements of Sec. 162(a) and Regs. Sec. 1.162-1 in three ways: The meal expense must be ordinary, necessary, and directly connected with, or pertaining to, the taxpayer's trade or business.

Next, as mentioned above, Regs. Sec. 1.274-12(a)(1) requires that:

  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer, or an employee of the taxpayer, is present at the furnishing of such food or beverages; and
  • The food or beverages are provided to the taxpayer or a business associate.

A long trail of Tax Court opinions describes the results of inadequate documentation of claimed business deductions — generally, their disallowance, principally because adequately supportive records of the business relationship of the expenses to the taxpayer were not provided, or the records substantiating the business purpose of the expense were not prepared contemporaneously with the expense.

Observe that these issues do not go directly to deductibility but, rather, to the recordkeeping requirement of Sec. 6001. Indeed, these reasons have substantial probative overlap but, in cases reviewed by the author, are frequently distinguished by the courts.26

In short, business meals must be substantiated in five respects:

  • Amount of the expense;
  • Date of the expense;
  • Location of the expense;
  • Business purpose of the meal; and
  • Identification of who was present at the meal.

Travel meals: Deductibility of a travel meal gets different, higher scrutiny.27 Regs. Sec. 1.274-12(a)(4) provides special rules for travel meals. This subsection invokes by reference paragraphs (a)(1) and (a)(2) of the regulation, so the three requirements of Regs. Sec. 1.274-12(a)(1) must be substantiated, just as they must be for nontravel meals. In addition, Regs. Sec. 1.274-12(a)(4) also refers to the statutory substantiation requirements of Sec. 274(d). Accordingly, a taxpayer who qualifies as away from his or her tax home and wants to deduct the cost of a meal must, in addition to documenting the requirements in Sec. 162(a) and its associated regulations and Regs. Secs. 1.274-12(a)(1) and (2), document that the substantiation requirements of Sec. 274(d) were met. The business purpose of a meal consumed by just the taxpayer is impliedly demonstrated by meeting the requirements of the sleep-or-rest rule of Correll described above.

Publication 463: Likely adding to, or at least not resolving, the uncertainty surrounding the substantiation issues for business meals is the IRS guidance in Publication 463,28 which indicates, with regard to business meals, that a restaurant receipt is enough to prove an expense for a business meal if it has all of the following information:

  • The name and location of the restaurant;
  • The number of people served; and
  • The date and amount of the expense.29

According to the final regulations, however, a restaurant receipt with this information on its own would not be adequate substantiation for either a nontravel or travel business meal, as it would not address the requirements of either subparagraph (ii) or (iii) of Regs. Sec. 1.274-12(a)(1) and only addresses the requirement of subparagraph (i) by implication (presumably, some evaluation that the meal was not lavish is made by division of the total cost by the number of people served). For travel meals, a receipt with this information also would be inadequate to substantiate either the time, place, or business purpose elements in Sec. 274(d) and Temp. Regs. Sec. 1.274-5T(b)(2). Sec. 274(d), as discussed above, provides that all travel expenses, including travel meal expenses, are not allowed unless that taxpayer "substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement" each of the required elements for the expense.30

Form of documentation: The documentation requirement for substantiating both travel and nontravel meals can be met by simply writing on the back of the restaurant receipt the names of the persons present at the meal and a summary of the business discussion. If the meal is a travel meal and just the taxpayer consumes it, a note about the business purpose of the travel is adequate to satisfy the sleep-or-rest rule. In his own practice, the author advises clients that, in the event of an IRS examination of a return, the note should be sufficiently detailed to credibly prompt their memories and support reasonably meticulous recitations of the business content of meetings that, by the time of an IRS examination, may have occurred several years before.

Establishing sound recordkeeping habits

Recordkeeping for business meals is the product of a plan combined with the sound habit of execution. Insofar as insufficient records are connected by a straight line to disallowance of deductions and resultant underreporting of income, practitioners should anticipate the confusion precipitated by the abrupt fashion in which the TCJA amended the scope of business meal deductions and advise clients of the similar, but distinguishable, purposes and demands of the travel and nontravel rules concerning substantiation of deductions.


1See, e.g., data from "Seated diners at restaurants open for reservations" at OpenTable (available at showing that U.S. restaurant seatings on Feb. 1, 2021, were only 56.5% of the Feb. 1, 2019, level but by April 19, 2021, had increased to 90.6% of the level two years earlier.

2National Taxpayer Advocate, Annual Report to Congress 2020, at p. 200 (tabulating cases decided between June 1, 2019, and May 31, 2020).

3Id. at p. 201 ("most opinions in this area resulted either from taxpayer confusion regarding the applicable legal requirements or from taxpayers' occasional attempts to push the envelope").

4Id. at p. 201. The NTA report also shows a significantly lower percentage of pro se taxpayer wins on issues of trade or business expenses than for represented taxpayers.

5This article is limited to conventional, small-scale business meals, whether or not consumed while traveling. The wider scope of Sec. 274 and its associated regulations, which includes numerous other scenarios, such as business entertainment events, expenses treated as compensation, attendance at conventions, and similar situations, is not treated here. 

6Tax Reform Act of 1986 (TRA 1986), P.L. 99-514.

7Omnibus Budget Reconciliation Act of 1993, P.L. 103-66.

8Section 210(a) of the Taxpayer Certainty and Disaster Relief Act of 2020, enacted as Division EE of the Consolidated Appropriations Act, 2021, P.L 116-260, temporarily provides that the 50% deductibility limitation of Sec. 274(n)(1) is inapplicable to expenses paid or incurred between Jan. 1, 2021, and Dec. 31, 2022, of otherwise deductible business food or beverages provided by a restaurant, with the result that the cost of such meals is completely deductible (Sec. 274(n)(2)(D)). Notice 2021-25 provides some initial guidance on what a "restaurant" is for purposes of this temporary exception.

9Kennedy's Special Message to the Congress on Taxation, April 20, 1961 ("This is a matter of national concern, affecting not only our public revenues, our sense of fairness, and our respect for the tax system, but our moral and business practices as well. This widespread distortion of our business and social structure is largely a creature of the tax system, and the time has come when our tax laws should cease their encouragement of luxury spending as a charge on the Federal treasury. The slogan — 'It's deductible' — should pass from our scene").

10P.L. 115-97.

11See, e.g., letter dated April 2, 2018, from the AICPA to Treasury and the IRS (available at requesting guidance on Sec. 274 (the TCJA's amendment of Sec. 274(a)(1)(A) rendering entertainment expenses associated with a taxpayer's trade or business no longer deductible "has caused taxpayer confusion as to the deductibility of business meals"). It may also be noted that the Joint Committee on Taxation did not discriminate between meals and entertainment for purposes of business expense deductions in the Blue Book for TRA 1986. See Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 (JCS-10-87), p. 58 (May 15, 1987). This position was consistent with the Senate Finance Committee report that accompanied the Revenue Act of 1962, in which the committee concluded that the tax notion of a business entertainment expense also "includes any business expense incurred in the furnishing of food and beverages" (S. Rep't No. 1881, 87th Cong., 2d Sess. 27 (1962)).

12See Levitt, The Marketing Mode: Pathways to Corporate Growth, p. 177 (McGraw-Hill 1969) ("The [business] lunch exists to help create relationships of personal trust and understanding, to create commercial friendships and obligations, to pay for favors hoped for and favors given").

13Business meals must, in any case, meet the gateway tests provided in Sec. 162 of being both "ordinary and necessary" and incurred in "carrying on a trade or business."

14Regs. Sec. 1.274-11(b)(1)(ii). 

15Regs. Sec. 1.274-12(a)(1)(iii).

16Regs. Sec. 1.274-12(b)(3).

17General business goodwill expenses are conventionally distinguished from deductible expenses made for specific business purposes. See, e.g., Rowell, 884 F.2d 1085 (8th Cir. 1989) (hunting and fishing trip expenses were not directly associated with taxpayer's business, especially since the taxpayer was often absent and expected "future goodwill"); Berkley Machine Works and Foundry Co., 623 F.2d 898 (4th Cir. 1980), cert. denied, 449 U.S. 919 (1980) (hunting lodge expenses were not deductible as business expenses because the taxpayer could demonstrate no business purpose other than general business goodwill).

18Correll, 389 U.S. 299 (1967).

19The IRS effectively adopted the "sleep or rest" rule in acquiescing to the decision in Williams v. Patterson, 286 F.2d 333 (5th Cir. 1961), through Rev. Rul. 61-221.

20See Williams, 286 F.2d at 339-40; Bissonette, 127 T.C. 124, 133 (2006) ("the proper inquiry is into the nature of petitioner's employment and his need for sleep or rest, not whether a layover was the result of scheduling").

21Rev. Rul. 93-86; see also Daly, 72 T.C. 190 (1979), aff'd, 662 F.2d 253 (4th Cir. 1981); Bissonette, 127 T.C. at 129-130.

22Regs. Sec. 1.274-12(a)(4)(i).

23Sec. 274(d), flush language (quoted in relevant part).

24Temp. Regs. Sec. 1.274-5T(c) states that written evidence is considerably more probative than oral evidence. It also gives examples of written evidence (account book, diary, log, statement of expense, trip sheets, or similar) and states that such documents should be prepared contemporaneously with the making of the expense and should include a written statement of the business purpose of the expense. If that business purpose is confidential, the taxpayer must still record it contemporaneously but may do so in a document separate from one of the listed types, so long as it is made available to the IRS when requested.

25Regs. Sec. 1.6001-1(a).

26See, e.g., Brown, No. 16604-19 (T.C. 3/18/21) (an adequate record must also be a contemporaneous record); Rogers, T.C. Memo. 2014-141 (meal expenses without sufficient documentation to demonstrate their business purpose are not deductible); Heinbockel, T.C. Memo. 2013-125 (a claimed deduction by a business owner for expenses for lunch with her assistant for wholly undocumented business reasons was disallowed). 

27Under Regs. Sec. 1.274-5(c)(2)(iii)(A)(2), the strict documentation requirements otherwise imposed on the substantiation of the deductibility of travel meals are relieved for meals costing less than $75.

28IRS Publication 463, Travel, Gift, and Car Expenses (rev. March 19, 2021).

29While the language surrounding this portion of the publication suggests that these elements are sufficient to substantiate business meal expenses generally, the title of the publication, "Travel, Gift, and Car Expenses," implies that the guidance applies to travel meals. 

30Sec. 274(d), flush language. Observe that Sec. 274(d) imposes the tests for amount, time and place, business purpose, and business relationship, while the regulation imposes the additional requirement that the food or beverage expense not be lavish or extravagant under the circumstances. This last requirement is already explicitly imposed by the "ordinary and necessary" test of Sec. 162(a)(2) ("other than amounts which are lavish or extravagant under the circumstances"). Further, Sec. 274(d) "strongly favors contemporaneously produced documentation" (Wakefield, T.C. Memo. 2015-4).



Dan M. Smolnik, J.D., MBA, is a tax attorney in Hamden, Conn. He is a member of the Executive Committee of the Tax Section of the Connecticut Bar Association and has recently completed a term on the Taxpayer Advocacy Panel of the IRS. Views expressed herein are his own. For more information about this article, contact


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