Current Federal Tax Developments

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IRS Details Restaurant Business Meal Expenses Eligible for 100% Deduction

The IRS released guidance in Notice 2021-25[1] to deal with the temporary allowance of a 100% deduction for restaurant business meal expenses under IRC §274(n)(2)(D) that was added to the law in December of 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA).

Temporary Full Deduction Relief

The Notice describes the TCDTRA’s temporary relief as follows:

Section 274(n)(2) provides exceptions to the 50-percent limitation of deductions for food or beverage expenses. Section 210(a) of the Act added § 274(n)(2)(D) to the Code, which provides a temporary exception to the 50-percent limitation for expenses for food or beverages provided by a restaurant. Section 274(n)(2)(D) applies to amounts paid or incurred after December 31, 2020, and before January 1, 2023.[2]

The purpose of this Notice is described as follows:

To provide certainty to taxpayers in determining whether § 274(n)(2)(D) applies, this notice explains when the temporary 100-percent deduction applies and when the 50-percent limitation continues to apply.[3]

Definition of a Restaurant

One key item to note is that the food or beverage must be provided by a restaurant.  The Notice provides information on what will qualify as a restaurant for these purposes:

For this purpose, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.[4]

The definition would allow a full deduction for amounts paid to a business that was selling food solely for take-out, such as a drive-through only business.

However, the Notice excludes food or beverages purchased from a business that primarily sells prepackaged food or beverages not for immediate consumption.  The Notice provides the following examples of such businesses:

  • Grocery store;

  • Specialty food store;

  • Beer, wine, or liquor store;

  • Drug store;

  • Convenience store;

  • Newsstand; or

  • A vending machine or kiosk.[5]

Food or beverage acquired from any of those businesses will be subject to the 50% deduction limit unless qualified for another exception from that limitation.[6]

The Notice also provides that an employer may not treat as a restaurant:

  • Any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income under § 119, or

  • Any employer-operated eating facility treated as a de minimis fringe under § 132(e)(2), even if such eating facility is operated by a third party under contract with the employer as described in § 1.132-7(a)(3).[7]


[1] Notice 2021-25, April 8, 2021, https://www.irs.gov/pub/irs-drop/n-21-25.pdf (retrieved April 8, 2021)

[2] Notice 2021-25, SECTION II

[3] Notice 2021-25, SECTION II

[4] Notice 2021-25, SECTION III

[5] Notice 2021-25, SECTION III

[6] Notice 2021-25, SECTION III

[7] Notice 2021-25, SECTION III