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Treasury and IRS Issue Guidance on Provisions from the December COVID-19 Relief Bill Providing Tax Relief for Deductions for Food or Beverages from Restaurants

The Treasury Department and the Internal Revenue Service (IRS) issued Notice 2021-25 providing guidance on tax relief for deductions for food or beverages from restaurants which was passed as part of the December 2020 COVID-19 relief bill. That legislation added a temporary exception to the 50 percent limit on the amount a business may deduct for food or beverages. Specifically, beginning January 1, 2021 through December 31, 2022, businesses can claim 100 percent of their food and beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant under the circumstances.

Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. Restaurants do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores and convenience stores.

Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.

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