100-Percent Meal Deduction Applies to 2021 and 2022 Per Diem Rate or Allowance

(Parker Tax Publishing December 2021)

The IRS issued a special rule under which the temporary 100-percent deduction for food or beverage expenses paid after 2020 and before 2023 applies to the meal portion of a per diem rate or allowance. This rule applies to expenses paid or incurred after December 31, 2020, and before January 1, 2023. Notice 2021-63.

Background

Code Sec. 274 generally limits or disallows deductions for certain meal and entertainment expenses that otherwise would be deductible. Code Sec. 274(n)(1) provides that a deduction for any expense for food or beverages generally is limited to 50 percent of the amount otherwise deductible. However, Code Sec. 274(n)(2)(D) provides a temporary exception to the 50-percent limitation for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023, for food or beverages provided by a restaurant. In Notice 2021-25, the IRS explained when the temporary 100-percent deduction applies and when the 50-percent deduction continues to apply for purposes of Code Sec. 274.

Generally, under Code Sec. 274(d), no deduction is allowed for any traveling expense (including meals while away from home) unless the taxpayer substantiates such expense by adequate records or by sufficient corroborating evidence. However, Code Sec. 274(d) authorizes the IRS to issue regulations under which some or all of the substantiation requirements do not apply in the case of an expense which does not exceed a particular amount. Reg. Sec. 1.274-5(j)(1) authorizes the IRS to establish a method allowing a taxpayer to treat a specific amount as paid or incurred for meals while traveling away from home instead of substantiating the actual cost.

In Rev. Proc. 2019-48, the IRS provides rules for taxpayers that choose to use a per diem rate to substantiate, under Code Sec. 274(d) and Reg. Sec. 1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home for: (1) lodging, meal, and incidental expenses; (2) meals and incidental expenses only; or (3) incidental expenses only. Taxpayers that follow the rules in Rev. Proc. 2019-48 are deemed to meet the substantiation requirements in Code Sec. 274(d) for the applicable travel expenses. Except for incidental expenses only deductions, all or part of the amount of an expense deemed substantiated under Rev. Proc. 2019-48 is subject to the appropriate limitation under Code Sec. 274(n) on the deductibility of food or beverage expenses.

Notice 2021-63

Last week, the IRS issued Notice 2021-63, which provides a temporary rule relating to the 100-percent deduction and per diem allowances. In Notice 2021-63, the IRS states that solely for purposes of the temporary exception in Code Sec. 274(n)(2)(D) to the 50-percent food and beverage limitation, a taxpayer that properly applies the rules of Rev. Proc. 2019-48 may treat the meal portion of a per diem rate or allowance paid or incurred after December 31, 2020, and before January 1, 2023, as being attributable to food or beverages provided by a restaurant.

Notice 2021-63 is effective for the meal portion of per diem allowances for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that are paid or incurred by an employer after December 31, 2020, and before January 1, 2023. For purposes of computing the amount allowable as a deduction to a self-employed individual or employee described in Code Sec. 62(a)(2)(B)-(E) for travel away from home, Notice 2021-63 is effective for the meal portion of per diem rates for meal and incidental expenses paid or incurred after December 31, 2020, and before January 1, 2023.

For a discussion of the temporary rule for deducting 100 percent of food and beverage expenses, see Parker Tax ¶91,115.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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