Posted by Evan Piccirillo, CPA
In 2017, a high-profile case (Jacobs v. Commissioner) pitted the owner of the Boston Bruins, an NHL hockey team, against the IRS, and the Bruins won—but… thanks to the Tax Cuts and Jobs Act (TCJA) we all lost.
The IRS had denied tax deductions relating to meals that the team provided to players and other staff for road games; these costs were not included in those employees’ wages and therefore, according to the IRS, only 50% deductible. The Bruins argued that the cost of meals counted as fully-deductible de minimis fringe benefits rather than only 50% deductible meals and entertainment expenses. The disagreement went to court and the ruling was in favor of the Bruins, but stretched the definition of certain aspects of the code that would allow for a full deduction.
Prior to the TCJA going into effect in 2018, taxpayers were allowed to deduct 100% of the costs of meals provided to employees if those costs were included in the wages of the employee. There was an exception to the requirement to include the costs in the employee’s wages if the facility providing the meals is on or near the business premises of the employer and the meals were considered provided for the convenience of the employer, along with some other technicalities which I won’t get into here.
A major part of the case hinged on the definition of “business premises.” Because these meals were on the road, the IRS argued that they could not be on the business premises of the employer. The Bruins claimed that travel was in the very nature of their business and the hotel space became their “business premises” since they had team meetings and attendance was mandatory. Like I said, it seems like a stretch of the definition, and in a recent “Action on Decision” memo released by the IRS they make it clear that those aspects of the ruling do not create a precedent for other taxpayers to follow. The IRS also stated it would narrowly apply this decision only to sports teams with very similar facts—not much help for the rest of us.
Ultimately, the big win by the Bruins in this case is not much to celebrate, because thanks to the TCJA effective 1/1/18, such de minimis fringe benefits are only 50% deductible. The worse news is that these expenses are nondeductible beginning on 1/1/26. Sorry, sports teams (and fans)!
The changes to deductibility of meals and entertainment under the TCJA don’t stop at de minimis fringe benefits and impact a much broader base of taxpayers than sports teams. If you have questions about how you are treating meals and entertainment expenses for your business, please reach out to your tax advisor. Or REM. We know a thing or two about this sort of thing.