IRS Serves Tax Breaks for Food or Beverages

Members of the tax community have been calling on the IRS for more clarity related to taxes on food and beverages since the new rules were enacted late last year as part of the Consolidated Appropriations Act (CAA).

Apr 12th 2021
Columnist
Share this content
new tax act

In a new Notice, the IRS has finally weighed in on the new 100 percent tax deduction for food or beverages bought by businesses from a restaurant (Notice 2021-25, 4/8/21).  In an effort to increase revenue for restaurants struggling during the COVID-19 pandemic, the Consolidated Appropriations Act officially authorized a 100 percent deduction for food or beverages provided by a restaurant. This tax break lasts for just two years—2021 and 2022.

Traditionally, a business can deduct 50 percent of the cost of its qualified business meals, provided the expenses are properly substantiated. To qualify for the new 100 percent deduction under the CAA provision, the food and beverages must be provided by a restaurant to retail customers. Note: The expenses can’t be lavish or extravagant under the circumstances.

But the law didn’t spell out what constitutes a “restaurant” for this purpose and it wasn’t entirely clear if this tax break applied to food or beverages purchased for off-site consumption as well as in-restaurant dining.

The New IRS Notice Sets the Record Straight

The Notice states that the restaurant must prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. Thus, it applies to both dining inside a restaurant and take-out fare.

Furthermore, the IRS says restaurants do not include businesses that primarily sell pre-packaged goods that are not for immediate consumption.

Register for free to continue reading

It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can:

Tick iconView all AccountingWEB content
Tick iconComment on articles

Access content now

Already have an account?

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.