The IRS issued proposed regulations in February Reg-100814-19 that follow Notice 2018-76 regarding meals and entertainment deductions. The notice further clarified that various types of entertainment expenses, including sporting events, are nondeductible.
According to our friends from
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"The proposed regulations also incorporate other statutory requirements taxpayers need to meet to write off 50 percent of an otherwise deductible business meal expense. “Specifically, the expense must not be lavish or extravagant under the circumstances and the taxpayer, or an employee of the taxpayer, must be present at the furnishing of the food or beverages,” according to the regulations.
The notice provided a general requirement that the food and beverages be provided to a business contact, which was defined as a “current or potential business customer, client, consultant, or other similar business contact.” “In particular, the proposed regulations include employees as a type of business associate, making the standard applicable to employer-provided meals as well as to situations in which a taxpayer provides meals to both employees and non-employee business associates at the same event,” according to the proposed regs, which ask for comments on the issue.
The government said in the proposal that under section 274(e)(4), any food or beverage expense for recreational, social, or similar activity that is primarily for the benefit of the taxpayer’s employees isn't subject to the deduction limitation under section 274(k)(1) and (n)(1). That said, activities that discriminate in favor of highly compensated employees and others, such as 10-percent (or greater) shareholders, aren’t for the benefit of the employees.
- In Rev. Rule 70-393 the cost of sponsoring a baseball team including uniforms, equipment supplies and league or tournament fees were deductible as advertising. Similar results occurred in TC Memo 2005-125 (Strong Construction) and TC Memo 1990-16 (Bower).
- TC Memo 2020-44 (Pinkston) Wow, what a case. The taxpayer bought a beach house for $1.6 million and a condo in Hawaii for $2.7 million. On the beach house they allocated $400 thousand to land and $1.2 million to 15 year life land improvements! On the condo they allocated $2.1 million to 5 year life, and $600 thousand to 27.5 years. I haven’t used the term “pigs get fat, hogs get slaughtered” in years, but boy does it apply here.
The IRS threw the book at them, and even applied a change in accounting method back to correct lives to recalculate the excess depreciation and bring it back to income in the current year, in full, as a 481A adjustment. If the taxpayer changes methods they are allowed 4 prospective years to bring the change into income, but when IRS changes an incorrect method, the taxpayer loses the 4-year bring-in option.
A change in method does not include a correction of a math error, the Court noted, but this was not the correction of a math error, it was a choice of an incorrect method (by using it for two years), followed by a change by the IRS to reflect income."