Under Section 274(n), a taxpayer generally may deduct only 50% of the taxpayer’s otherwise allowable business expenses for food and beverages. The Consolidated Appropriations Act, 2021, removed this limitation for business expenses paid or incurred after 2020 and before 2023 for food or beverages provided by a restaurant. The IRS has released Notice 2021-25, which provides guidance on what is a ‘restaurant’ for this purpose.
Notice 2021-25 defines a restaurant as 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.
Taxpayers that incur trade or business expenses for food or beverages may deduct 100% of those expenses if they purchase the food or beverages from a business that prepares and sells food or beverages to retail customers for immediate consumption.
