Tax and Private Client Blog

The Party is Over: Meals and Entertainment Expenses are No Longer Favored by the Tax Code

By Farzaneh Savoji

The Tax Cuts and Jobs Act (the “Act”) changed the deductibility of entertainment expenses and modified the language in the Internal Revenue Code Section 274 to limit the deduction of business meals.

Before the Act, companies could generally deduct half of their business-related entertainment costs, including show tickets, golf course fees, sporting events, and business meals to foster client relationships. Starting in 2018, the Act axed this break resulting in no write-offs for most of these entertainment expenses even if the purpose is to chat about business.

Entertainment Expenses

The Treasury Regulations define “entertainment” broadly as “any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at nightclubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation and similar trips.”[1]

Under the pre-Act law, for 2017 and prior years, 50% of these entertainment expenses are deductible where (1) the expenses is “directly related to” the active conduct of the taxpayer’s trade or business; or (2) the expense is “associated with” the active conduct of the taxpayer’s trade or business provided that the expenses either “directly preceded or followed a substantial and bona fide business discussion.”[2]

The Act removed the “directly related to” and “associated with” and thereby, repealed the rule that allowed a deduction for entertainment, amusement, or recreation expenses directly related to the active conduct of a taxpayer’s business. Under the new Section 274, no deduction is allowed for (1) an activity generally considered to be entertainment, amusement, or recreation; (2) membership dues for any club organized for business, pleasure, recreation, or other social purposes; or (3) a facility used in connection with any of the above items.

Thus, entertainment expenses are completely nondeductible, regardless of whether they are directly related to or associated with the active conduct of the taxpayer’s trade or business.[3] However, Section 274 (e)[4] does provide several exceptions to this rule; one of which is for a deduction of expenses related to recreation or social activities for the benefit of the taxpayer’s employees e.g. holiday party or company picnic.

Although the Act clearly repealed the entertainment cost deduction rule for events such as country club and sporting events, the deduction for meal expenses associated with business meetings are somewhat murky.

Business Meals

There seems to be a sharp divide among tax practitioners on the deductibility of the cost of client meals.  Some are of the opinion that client meals, for example, a post-golf lunch at the country club, are 50% deductible if business is discussed or conducted. Others are more conservative and hold the position that client meals can no longer be written off unless the Internal Revenue Service (the “IRS”) provides guidance stating otherwise.

Until clear guidance is issued, an analysis of Revenue Ruling 63-144 supports the conclusion that business meals are “entertainment” and thus, prohibited from deduction unless one of the exceptions under Section 274(e) applies.

The exceptions that may avoid the nondeductibility of business meals is found in Section 274(e)(1) where expenses incurred for “food and beverages furnished on the business premises of the taxpayer are primarily for the employees.” This Section does not require the expense to be incurred exclusively for the employee but rather, primarily which can include clients as long as employees receive the benefit as well.

Thus, it seems as though a meal expense may be deducted if the food or beverage is provided on the taxpayer’s premises and the primary cost incurred is for the taxpayer’s employees.

Summary Chart: 


Pre-Act Deduction Rules

New Deduction Rules





50% deduction for face value of event tickets



No deduction permitted


Business meals



50% deductible


50% deductible


Meals during business travel



100% deductible if considered de minimis fringe benefits and excluded from employee’s gross income; otherwise, 50% deductible




50% deductible


Meals provided for the convenience of employer



100% deductible if considered de minimis fringe benefits and excluded from employee’s gross income; otherwise, 50% deductible



50% deductible



Holiday party/office picnics



100% deductible


100% deductible


Our View

The American Institute for CPAs (AICPA) has submitted a written request to the Treasury and the Internal Revenue Service requesting immediate guidance on the deductibility of business meals and other work-related expenses, such as entertainment and membership dues, all of which are affected by the new tax legislation.  Until further guidance is provided, businesses should not co-mingle their meals, entertainment, and recreational employee expenses in their books and records. Instead, we recommend separate ledgers for each category with contemporaneous explanations of the expense. 

Should you have any questions or desire further insight, feel free to contact one of the members of our Tax Department:

Mayer Nazarian, Chair of the Tax Department -
Eli Akhavan, Chair of the Private Clients and Wealth Preservation Practice Group -       
Aman Badyal -
Elizabeth Larrauri Chamulak -
Elizabeth Nelson -
Farzaneh Savoji -
Gary Edelstone -
Michael Shaff -
Jon Hughes -
Gordon Einstein -

DISCLAIMER: This article is not intended to provide legal advice, and no legal or business decision should be made based on its contents. 


[1] Treas. Reg. §1.274-2(b)(1)(i).

[2] Former I.R.C. §274(a)(1).

[3] I.R.C. §274(a)(1) as amended by 2017 Tax Cuts and Jobs Act §13304(a)(1)(A).

[4] I.R.C. §274(e) provides exceptions to the general rule in §274(a).