IRS Clarifies that Employee Per Diem Expenses Qualify for the Temporary 100% Deductible

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The Internal Revenue Service (IRS) recently announced that the 100% deduction permissible as a business expense in 2021 and 2022 for food or beverages by a restaurant applies to the meal portion of a per diem rate. The notice is effective from Dec. 31, 2020, through Jan. 1, 2023, and applies to expenses incurred by an employer, self-employed individual or employees described in Secs. 62(a)(2)(B) through (E) of the Internal Revenue Code (IRC). Traditionally, a deduction of any food or beverage expense was limited to 50% of the amount otherwise deductible for acceptable business expenses. However, the Consolidated Appropriations Act, 2021, added new guidelines stating that the full cost of such expenses is deductible if incurred within the Dec. 31, 2020, to Jan. 1, 2023, timeframe for food and beverages “provided by a restaurant.” In Notice 2021-25, the IRS issued insight on the definition of “provided by a restaurant” but did not state how the full deduction may be used when treating a specific meal expense as paid or incurred while traveling away from home, instead of authenticating the actual cost under Regs. Sec. 1.274-5(j)(1), and under the per diem method in Rev. Proc. 2019-48. Rev. Proc. 2019-48 further states that amounts are subject to appropriate limitations regarding the deductibility of food or beverage expenses. For further clarity, the latest notice offers a special rule: “Solely for purposes of § 274(n)(2)(D), 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 Dec. 31, 2020, and before Jan. 1, 2023, as being attributable to food or beverages provided by a restaurant.” If you have questions about the updated restaurant guidelines for the meal portion of the per diem rate, contact Doeren Mayhew’s business tax advisors today.

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