The IRS has released guidance explaining when the temporary 100% deduction for restaurant meals is available and when the 50% limitation on the deduction for food and beverages continues to apply for Sec. 274 purposes (Notice 2021-25). The Consolidated Appropriations Act, 2021 temporarily increased the deduction from 50 percent to 100 percent for a business’s restaurant food and beverage expenses for 2021 and 2022. All other food and beverage expenses are still subject to the 50 percent deduction limitation unless some other exception applies.
Restaurants Defined
The IRS guidance defines a restaurant as a business that prepares and sells food or beverages to retail customers for immediate consumption. Note that the food and beverages do not need to be consumed on the premises for the 100-percent deduction to apply.
Restaurants are not businesses that predominantly sell pre-packaged food or beverages that are intended for later consumption. Food or beverages purchased from such businesses are still subject to the 50-percent deduction limitation. Examples of businesses that are not restaurants include grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines, or kiosks.
Restaurants are also not eating facilities located at an employer’s business that provide meals that are excluded from the employees’ gross income or are considered a de minimis fringe. This definition also applies to eating facilities on the employer’s premises that are operated by a third party.
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