IRS Clarifies Per Diem Eligibility for 100% Business Meal Deduction

November 17, 2021

The Internal Revenue Service on November 16th issued guidance on the temporary 100% deduction for food or beverage purchases from restaurants.

The guidance states that taxpayers using the per diem allowance can deduct 100% of business meals provided by restaurants for tax years 2021 and 2022.

The full deduction is available to taxpayer who properly apply the rules of Revenue Procedure 2019-48, which defines per diem allowance as:

The term ‘per diem allowance’ means a payment under a reimbursement or other expense allowance arrangement that is –

(1) Paid for ordinary and necessary business expenses incurred, or that the payor reasonably anticipates will be incurred, by an employee for lodging, meal, and incidental expenses, or for meal and incidental expenses, for travel away from home performing services as an employee of the employer,

(2) Reasonably calculated not to exceed the amount of the expenses or the anticipated expenses, and

(3) Paid at or below the applicable federal per diem rate, a flat rate or stated schedule, or in accordance with any other Service-specified rate or schedule. 

The 100% meal deduction was included in the Consolidated Appropriations Act, 2021 that was enacted into law last December. The provision provides a 100% deduction for business-related meals (rather than the prior 50%) if the expense for food or beverages is provided by a restaurant. The expense must also be ordinary and necessary. 

Prior IRS guidance clarified what constitutes a restaurant to claim the 100% deduction. Notice 2021-25 states the following:

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. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.

The guidance also states that:

[A]n employer may not treat as a restaurant for purposes of § 274(n)(2)(D), (1) 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 (2) 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).

It is also worth noting that the 50% deduction continues to be applied in certain circumstances.

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