8752 / What substantiation requirements apply when a taxpayer deducts business-related entertainment and meal expenses?

In order for a taxpayer to deduct business-related meal expenses, the taxpayer must maintain records adequate to provide the following information:

(1)  The amount of each separate expense;

(2)  The time and date upon which the expense was incurred;

(3)  The name, address and/or location where the expense was incurred (prior to 2018, if the location information does not make the type of entertainment apparent, the taxpayer must indicate whether it was a dinner, theater, sporting event, etc.);

(4)  The business reason for the meal or the business benefit expected to be derived from the event, and (except in the case of business meals furnished on employer premises), the nature of any business discussion or activity;²

(5)  A description of the business relationship between the taxpayer and the parties who were present (name, title or other description sufficient to establish the business relationship). See Q 8749 for a discussion of how the final regulations define “business associate”.³

The taxpayer’s records must contain all of the above information or the deduction may be disallowed.⁴ However, if a large group of individuals is involved, the taxpayer is not required to provide a name, title and description for each individual—a general description, such as “directors of Company X,” will suffice if the group is homogeneous enough so that such a description will provide adequate identification. If, however, the group that is so diverse that such a label will not identify the business relationship at issue, the IRS will require a listing on an individual basis.⁵

Prior to 2018, if a taxpayer held season tickets for purposes of business entertaining, the event represented by each individual ticket must be treated as a separate entertainment event. For example, a taxpayer who held season tickets for Boston Red Sox home baseball games was required to keep records providing the above information as it applied to each individual game.⁶

Post-reform, taxpayers continue to be able to deduct up to 50 percent of business-related meal expenses despite the disallowance of a deduction for entertainment. When meals are provided at the same time as entertainment, the regulations require that the cost of the meal be accounted for on a separate receipt or separately stated from the entertainment if billed on a single receipt. Further, to prevent employers from inflating the cost of food and beverage to make up for the disallowance of the entertainment deduction, the regulations provide that the cost stated on the receipt must be that which is ordinarily charged by the venue if they were purchased apart from entertainment.⁷