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The Boston Bruins beat the IRS in court last year, winning full deductions for pregame meals during away games. But the new tax law appears to give the agency the last word.
The law “effectively overrides the victory achieved by the Bruins in Tax Court,” said David Fuller, counsel at McDermott Will & Emery in Washington, whose practice covers matters involving employee fringe benefits.
In the Bruins case, the U.S. Tax Court ruled in June 2017 that Jeremy M. Jacobs, owner of the National Hockey League franchise, could fully deduct the amount spent on meals provided to players and staff at hotels before away games, finding that the meals qualified for the de minimis fringe exception to a 50 percent limitation on meal expense deductions under tax code Section 274(n).
The ruling hinged in part on the court agreeing that the hotel where the team ate its meals was an employer-operated eating facility.
That exception is eliminated under the 2017 tax act, said Christa Bierma, a principal in Ernst & Young LLP’s National Tax Department and former attorney-adviser in the Treasury Department’s Office of Benefits Tax Counsel.
Since it “no longer exists, the Bruins will have to decide what to do going forward,” she told Bloomberg Tax in an email. The team could try to win on an alternative argument raised in the case—which the Tax Court didn’t address because the Bruins were successful with their first line of defense—but that could be a long shot, both Bierma and Fuller said.
Tax practitioners in July said the Bruins’ Tax Court win could create an opportunity for other sports teams or even performers such as singers and actors who travel for business—doing concert tours or film promotions—with similar facts as the Boston franchise to get a 100 percent meal deduction.
The tax law closed the door on that opportunity but may not ultimately affect business operations for those entertainers because prior to the court’s ruling, the majority of them were only taking a 50 percent deduction for meals on the road, practitioners told Bloomberg Tax recently.
Bierma said the more significant change is likely a provision in the law that says that after 2025, meals at an employer-operated eating facility or furnished for the convenience of the employer are no longer deductible.
Prior to 2018, a taxpayer could qualify for the de minimis fringe exception to the 50 percent meal expense deduction limitation by establishing that the meals met certain requirements, including that the eating facility in which they were provided was operated by the employer; the facility was located on or near the employer’s business premises; and the meals were furnished immediately before, after, or during the employees’ workday.
After considering the Bruins’ unique facts, the Tax Court ruled that the team met these requirements and that the hotel rooms where the players and staff ate their meals qualified as the employer’s business premises.
Starting in 2018, the tax law stipulates that meal expenses related to the operation of an employer-run eating facility; food and beverages, including de minimis meals under Sections 132(e)(1), associated with in-house dining facilities; and meals provided for the convenience of the employer are generally subject to a 50 percent deduction limitation, eliminating the basis of the Bruins’ argument. After 2025 those expenses are entirely non-deductible.
Meals while traveling “away from one’s tax home are excludable as a working condition fringe and 50% deductible so sports teams will likely back off the characterization of the away game meals as an employer-operated eating facility furnishing meals for the convenience of the employer and go back to the basic working condition fringe analysis,” Bierma said.
“It will be an interesting reversal in 2026 when employer-operated eating facility and convenience of the employer meals go from being a tax-favorable characterization to being a particularly tax-unfavorable characterization,” she said.
The Bruins didn’t respond to requests for comment on the tax law changes.
The tax law and its legislative history are unclear about the deductibility of de minimis food and beverages not associated with an on-premises eating facility, said Mary B. “Handy” Hevener, a partner at Morgan, Lewis & Bockius LLP, whose practice focuses on helping U.S. and multinational enterprises minimize corporate payroll taxes and maximize benefits–related tax deductions.
Are those items exempt from the 50 percent limitation even though there is no longer a specific reference in code Section 274(n) to “de minimis food and beverages,” Hevener questioned in an email.
“We know that all de minimis fringes associated with on premises eating facilities are only” allowed a 50 percent deduction, she told Bloomberg Tax. “It just is not entirely clear whether de minimis meals NOT associated with” on-premises “eating facilities are 100 percent deductible.”
For example, under a narrow exception in Treasury Regulations Section 1.132-6(e)(1) the cost of “group meals” is generally excludable from gross income as a de minimis fringe. Does that mean group meals provided off of employer premises can qualify for a 100 percent deduction? Hevener asked.
Sports teams and others in the entertainment industry may try to lobby against the changes in the new tax law, Bierma said. But the modifications to meal deductions, as well as the elimination of the employer tax deduction for nearly all directly paid or reimbursed business entertainment expenses in the law, collectively raised about $22.9 billion, she said. “So pulling back these revenue raisers would be expensive and perhaps unlikely to garner much sympathy.”
Bierma said she does envision most taxpayers trying to find ways to adjust to the new normal.
Susan Mehlman, who leads the Compensation and Benefits Practice at Moss Adams LLP in Seattle, said: “It’s possible you’ll see people trying to disassemble current business operations and turn them into discrete expenses to get a different tax break.”
For example, perhaps the Bruins or teams in a similar situation, try to make a distinction between the hotel rooms in which they hold business meetings and review film, versus the location where they eat their meals, to take full advantage of available deductions, she said.
Mehlman also said she expects the conversation around the deductiblity of meal expenses to be revisited closer to 2025, after which some of those expenses lose their deduction entirely.
It’s possible that under a new administration that provision never takes effect, she said. “I wouldn’t like to think that this is the new normal.”
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