Changing the Paradigm for Meals & Entertainment Deductions

Article written by FGMK Tax Senior Managers Ron Shudrowitz and Susan Parente

Summary - Recent US Tax Court Decision

Jacobs v. Commissioner, 148 TC No 24 (June 26, 2017) is a recent decision by the US Tax Court that has changed the paradigm for allowable meals & entertainment deductions. The Tax Court sided with the Boston Bruins Hockey Club in holding that the provision of pre-game meals to the club’s players and personnel at hotels on away games qualifies as a “de minimis fringe benefit” under Internal Revenue Code Section 274(n)(2)(B.) As such, these meals were fully tax-deductible.


The Boston Bruins is a professional NHL hockey team. Approximately half of the team’s games are played away from home. For these games, the team stays at hotels in the host city and contracts with the hotels for the provision of meals. The hotels prepare breakfast, lunch or brunch, and snacks that meet the player’s specific nutritional guidelines to ensure optimal performance at game time. Player attendance is mandatory for these pre-game meals. In addition to providing nutrition to the players, meals also are used as time for the players to meet with the coaches, to discuss game strategy, review game films, make roster adjustments due to illness or injury, and so on. In addition to using the hotels for lodging, meals and meetings, the team also rents space for its staff to administer player medical treatment, physical therapy, massages, strength conditioning, and so on. 

The Decision

For the years under consideration in the case, the Bruins deducted 100% of these meal expenses on the team’s tax return. The IRS challenged the deduction and asserted that the expenses were only 50% deductible. The IRS maintained that the expenses did not qualify as a “de minimis fringe benefit” under Code Section 274(n)(2)(B).  The Tax Court disagreed and sided with the Boston Bruins, thereby upholding the 100% expensing of the meals & entertainment expenses on the return.  

The General Tax Rule

Generally, taxpayers are entitled to deduct ordinary and necessary meals and entertainment expenses only if the expenses are either “directly related to” or “associated with” the active conduct of a trade or business. The general rule under Code Section 274(a)(1) states that no deduction is allowed for expenditures associated with “entertainment, amusement, or recreation” unless the taxpayer can support that the expense was directly related to a “bona fide business discussion.” Even when such a bona fide business purpose exists, a taxpayer’s deduction for business meals & entertainment usually is limited to 50% of the costs incurred. Of course, there are several exceptions to the general disallowance rule that can allow full deductibility of certain meals & entertainment expenditures.  

Exceptions to the General Tax Rule

The statutory exceptions to the 50% disallowance include the following:

  • Reimbursed expenses,
  • De minimis fringe benefits,
  • Expenses for recreational, social, or other similar activities primarily for the benefit of employees,
  • Expenses treated as taxable compensation to employees,
  • Expenses includible in the income of persons who are not employees,
  • Entertainment sold to customers, and
  • Expenses for items made available to the public.

 De Minimis Fringe Benefits

Meals provided to employees can be fully deductible when the meals are excludable from an employee’s income under Code Section 119(a) (the “for the convenience of the employer” test) and also are considered a de minimis fringe benefit under Code Section 132(e). In Jacobs, the Bruins argued that the meals provided while the team was away from home should not have been limited by the 50% disallowance rule, because the meals qualified as a de minimis fringe benefit under Code Section 274(n)(2)(B).

In reaching its decision, the US Tax Court looked to the following factors:

  • The employer owns or leases the eating facility: the Court said that, unless otherwise defined, words should be interpreted as taking their ordinary meaning. In this vein, the Court ruled that the renting of the hotel space where the meals were provided amounted to a lease.
  •  The employer operates the facility: the Court looked to the income tax regulations that state that “if an employer contracts with another to operate an eating facility for its employees, the facility is considered to be operated by the employer.” The Court thus held that the Bruins operated the facility and met this requirement.
  •  The facility is on or near the employer’s business premises: The IRS argued this point energetically. The IRS took the position that the activities at away hotels were qualitatively less important than the actual playing of the game, and that the Bruins spent less time at each away city hotel than they did at their home city facilities. On this basis the IRS argued that the away hotels did not constitute a facility “on or near the employer’s business premises.” The Tax Court disagreed, noting that playing hockey games was important to the Bruins’ business, and that preparation for away games (at the away hotels) was important as well. Further, the Court stated that it was illogical to ignore the nature of the Bruins’ business (in that they were required to play away games) and to analyze the time spent at each away city in a vacuum. The Court also indicated that there was no precedent in using a quantitative analysis to determine the location of business premises.
  •  The meals at the facility are provided during, or immediately before or after, the employees’ work day: the IRS conceded that this requirement was met.
  •  The facility generates annual revenue that equals or exceeds its direct operating costs: the Code provides, at Section 132(e), that if an employee is able to exclude the value of meals under Section 119, then the requirement that the facility generates annual revenue that equals or exceeds its direct operating costs is met. The Tax Court held that the meals met the “for the convenience of the employer” test, in that the hectic team schedule before the away games required that the Bruins provide the meals.


While most businesses will break out meals and entertainment expenses by department or general ledger account (e.g. meals, memberships, dues, etc.), many do not provide their tax advisors with the level of accounting detail to permit a complete analysis of such expenses. This can result in the misclassification of expenses, and an understatement of the taxpayer’s income tax deductions. By providing complete documentation including the amount of the expense, the time and place of the meal / entertainment, the business purpose, and the parties in attendance, the deductibility of meals and entertainment expenses can be maximized.  

The Takeaway

The decision in Jacobs has challenged the way in which meals and entertainment expenses have been deducted in the past. Even though the existing rules for the deductibility of meals and entertainment expenses may seem fairly straightforward, businesses should pay careful attention to these rules and consult their tax advisor to determine whether all or any portion of the deduction may be limited. FGMK can assist your business in maximizing your deduction for meals provided for valid business purposes, in light of the Jacobs case.



About FGMK

FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.

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