An independent contractor organizes a conference, which is attended by a number of people. As part of their registration fee, the attendees are provided a catered meal which is paid for by the independent contractor. Is the catered meal expense incurred by the contrator subject to the 50% meal deduction limitation, or can the contractor deduct the catered meal expense in full?
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Meal expense as part of a seminar
The meal is fully deductible. Here is the source: §274. Disallowance of certain entertainment, etc., expenses; (e) Specific exceptions to application of subsection (a)
Subsection (a) shall not apply to- (h) Attendance at conventions, etc.
(1) In general
In the case of any individual who attends a convention, seminar, or similar meeting which is held outside the North American area, no deduction shall be allowed under section 162 for expenses allocable to such meeting unless the taxpayer establishes that the meeting is directly related to the active conduct of his trade or business and that, after taking into account in the manner provided by regulations prescribed by the Secretary-
(A) the purpose of such meeting and the activities taking place at such meeting,
(B) the purposes and activities of the sponsoring organizations or groups,
(C) the residences of the active members of the sponsoring organization and the places at which other meetings of the sponsoring organization or groups have been held or will be held, and
(D) such other relevant factors as the taxpayer may present, -
I'm expressing no opinion on whether the 50% cut applies but I don't see where your citation is on point. The 50% cut is contained in §274(n) - I think you need to look there at the various exceptions.Originally posted by jrex1608 View PostComment
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Open to the Public
I remember reading that meals at events open to the pubic are not subject to the 50% dis-allowance. Open to the public does not just mean anyone walking in off the street. The way I understand it, it means any event that does not have an entertainment motive.Comment
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I agree with your first part - the 50% cut does not apply at events open to the public as described in §274(n) and §274(e).Originally posted by Kram BergGold View Post
However, I don't agree with your second part. I believe the regulations at §1.274-2(f)(2)(viii) give a different picture.
(viii) Items available to the public.
Any expenditure by a taxpayer for entertainment (or for a facility in connection therewith) to the extent the entertainment is made available to the general public is not subject to the limitations on allowability of deductions provided for in paragraphs (a) through (e) of this section. Expenditures for entertainment of the general public by means of television, radio, newspapers and the like, will come within this exception, as will expenditures for distributing samples to the general public. Similarly, expenditures for maintaining private parks, golf courses and similar facilities, to the extent that they are available for public use, will come within this exception. For example, if a corporation maintains a swimming pool which it makes available for a period of time each week to children participating in a local public recreational program, the portion of the expense relating to such public use of the pool will come within this exception.Comment
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"As part of their registration fee". The attendees are paying for it. Fully deductible.Originally posted by KWF View Post
Although not exact, IRC 274(e)(8) could be applied.
(8) Entertainment sold to customers
Expenses for goods or services (including the use of facilities) which are sold by the taxpayer in a bona fide transaction for an adequate and full consideration in money or money’s worth.
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History of the Baloney Sandwich
The 50% has its roots in politics and the history is worth knowing. By the time of the 1986 tax law rewrite, politicians in BOTH parties were grandstanding their positions for the press (interesting nothing has changed in the 27 years thence).
So many references were made to business executives being able to fully deduct their "three-martini lunch" when the common worker couldn't even deduct "a baloney sandwich". So !Presto! the 50% deduction was born and made an integral part of the 1986 tax rewrite.
The code initially applied to just about everything. In cases where the meals were billed to 2nd and 3rd parties, the law did not apply to ALL the parties, as long as it applied to ONE of the parties.
A so-called "technical correction" gained momentum because federal acquisition regulations allowed for federal contractors to be reimbursed for all costs, most notably on cost-type contracts. Even on other-type contracts, the contractors still had their bid structured on meals being deducted. The acquisition regulations allowed for "equitable adjustments" to bring relief to contractors who were impacted by changes in the law on existing contracts when the change was made.
Federal contractors in 1986-87 were ringing up the cash register for the extra cost resulting from not being able to deduct their meals, and sending the govt these "equitable adjustments". In effect, the govt was going to have to reimburse all their contractors for 50% of ALL MEALS incurred on every contract. BILLIONS of dollars.
To appease the Dept of Defense and other Federal Agencies who were going to have to cough up the money, the "technical correction" was built into the regs where in cases where meals are reimbursed under a contract, no 50% disallowance was applied. Technically, we go back to the scenario where ONE of the parties has to forego the 50%, but the regulations deemed the government to be stuck with the 50%, and since the gubbermint doesn't pay taxes, then the disallowance is effectively thrown out entirely.
Applying this to the original post, if the host doesn't pay taxes, the 50% is reimbursed, and your answer is NO. It may qualify for relief under another reg (I won't enter the discussion on that), but it clearly qualifies for relief if the meals are reimbursed.Comment
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