Special rules for Meals and Entertainment
Congress decided there was a higher chance for fraud or errors in deducting meals and entertainment. Consequently, Congress enacted Section 274 of the Internal Revenue Code in 1962 creating special meal and entertainment tax rules. There have been quite a few changes to Section 274 but this post will only cover the current rules. Beyond the normal documentation to claim any business deduction Congress added these additional documentation requirements:
- The amount of each separate expense
- The date of the event
- The name, address or location, and designation of the type of activity. For example, dinner or theater, if that information is not apparent from the other information.
- The business reason for the expense or the nature of the expected business benefit. Include the nature of any business discussion or activity before during and immediately after.
- The occupation or other information relating to the person(s) attending. Include their name(s), title(s), or other designations, sufficient to establish business relationship to the taxpayer.
Leave something out, IRS will deny the deduction and the courts will uphold the IRS. Congress allowed no leeway for IRS or the courts. A perfect example where Congress needs to allow IRS and the courts some discretion. If you agree, please contact your Representative and Senator.
Per Diem rules
Per Diem expenses must be documented the same as all other meal expenses. If the Per Diem exceeds the federal amount then the employee has to return the excess, or the entire amount, not just the excess, must be included in the employee’s wages.
To sum this post up, want a deduction for meals and entertainment then keep the proper documentation. This is a brief summary of the rules so please contact us for more details or post a question or other comment in reply to this post.