Wall street era of deducting $65 dry-aged steaks could be over – bloomberg

It all boils down to whether a meal is considered entertainment. The new law says no “entertainment, amusement or recreation” of any kind is deductible — even if it’s related to the active conduct of business. But it doesn’t explicitly say that business meals are no longer deductible.

For Ruth Wimer, an executive compensation lawyer and accountant at Winston & Strawn LLP in Washington, the answer is clear. “If I’m a hedge fund manager and I take a current or prospective investor to a Hell’s Kitchen steakhouse, it is completely non-deductible,” Wimer said. Meals Task Force

The American Institute of CPAs urged the Treasury Department and Internal Revenue Service earlier this month to provide immediate guidance to clear up taxpayer confusion about the deductibility of business meals.

The institute, which formed a meal and entertainment task force, asked for clarification on client business meals separate from entertainment events as well as those before, during or after entertainment events.

For now, major accounting firms are trying to make their clients aware of the potential change. PricewaterhouseCoopers said in a March note that it’s unclear whether the IRS may seek to deny deductions for meals that are associated with non-deductible entertainment. Since many expenses include elements of both entertainment and business, it will be difficult for companies to distinguish between and account for those costs, according to PwC.

Some tax practitioners started getting concerned about the treatment of meal expenses in February, when Congress’s nonpartisan scorekeeper, the Joint Committee on Taxation, gave the clearest indication yet that the deduction had been eliminated for business meals.

In its 38-page overview of the new federal tax system, the JCT said in a footnote that the new law “changed the rules governing the deductibility of meal and entertainment expenses to generally prohibit deductions for entertainment expenses, including meals and other items, activities, and facilities that constitute entertainment.”

The old law permitted the deduction for entertainment or meals if companies had a necessary business purpose, like current contracts or prospective deals, and they weren’t “lavish or extravagant.” Companies can still deduct 50 percent of the cost of food in limited circumstances, like when employees are traveling and order room service or eat solo. High-End Steakhouses

Del Frisco’s Restaurant Group Inc., which operates steakhouses across the U.S., says the majority of its weekday business comes from expense-account customers. “Our business therefore may be affected by reduced expense account or other business-related dining by our business clientele” as a result of U.S. budgetary and fiscal policy uncertainties, including recent tax legislation, the company said in its latest annual report in March.

The business-meal spending by companies is a “meaningful amount” for the restaurant industry, and if the IRS makes changes, it’s very likely to have a negative effect for high-end steakhouses like Morton’s or Ruth’s Chris, said Darren Tristano, chief executive officer of the researcher CHD-Expert for the Americas.