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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2021–2
January 11, 2021

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

ADMINISTRATIVE
T.D. 9940, page 311.

The final regulations describe the procedures used by the IRS
to handle misdirected direct deposits of tax refunds. The procedures describe the reporting, identification, and recovery
processes used for misdirected direct deposit refunds. The
procedures described in the final regulations may be used by
any taxpayer whose refund was disbursed as a direct deposit
but the taxpayer believes is missing.

EMPLOYEE PLANS
Notice 2021-03, page 316.

This notice provides a 6-month extension of the relief provided in Notice 2020-42. For the period from January 1, 2021,
through June 30, 2021, this notice extends two types of relief
from the physical presence requirement in § 1.401(a)-21(d)
(6)(i) for participant elections required to be witnessed by a
plan representative or a notary public: (1) temporary relief
from the physical presence requirement for any participant
election witnessed by a notary public in a state that permits
remote notarization (either by law or through an executive
order), and (2) temporary relief from the physical presence
requirement for any participant election witnessed by a plan
representative. This temporary relief is extended in order to
further accommodate local shutdowns and social distancing
practices in response to the Coronavirus Disease 2019 pandemic (COVID-19 Emergency). This notice also solicits comments on the relief.

EXCISE TAX
Notice 2021-04, page 319.

Notice 2021-04 provides the final extension of the temporary
dyed fuel relief provided in section 3.02 of Notice 2017-30,
2017-21 I.R.B. 1248. The temporary relief was extended

Finding Lists begin on page ii.

through December 31, 2018, by section 3 of Notice 201839, 2018-20, I.R.B. 582, then extended through December
31, 2019, by section 3 of Notice 2019-04, 2019-02 I.R.B.
282, and further extended through December 31, 2020, by
section 3 of Notice 2020-04, 2020-04 I.R.B. 380. A claimant
may submit a refund claim for the § 4081(a)(1) tax imposed
on undyed diesel fuel and kerosene for fuel that is (1) removed from a Milwaukee or Madison terminal; (2) entered
into a Green Bay terminal within 24 hours; and (3) subsequently dyed and removed from that Green Bay terminal. The
relief provided in this notice takes effect beginning January
1, 2021, and ending December 31, 2021.

REG-130081-19, page 321.

These final rules regarding grandfathered group health plans
and grandfathered group health insurance coverage amend
the current rules to provide greater flexibility for certain
grandfathered health plans to make changes to certain types
of cost-sharing requirements without causing a loss of grandfather status.

EXEMPT ORGANIZATIONS
Notice 2021-01, page 315.

This notice provides that, while subject to a delay, private
foundations must electronically file Form 4720, Return of
Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, as required by section 3101 of the Taxpayer First Act of 2019 (Pub. L. No. 116-25) amendments to
section 6033 of the Internal Revenue Code. Private foundations may no longer rely on Treas. Reg. § 53.6011-1(c) as a
result of this electronic filing mandate.

INCOME TAX
Rev. Rul. 2021-01, page 294.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes

of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for January 2021.

the elimination of the deduction under section 274 for entertainment expenses paid or incurred in taxable years beginning after December 31, 2017. The final regulations provide guidance to distinguish entertainment expenses from
meal and beverage expenses and address the application
of certain exceptions under section 274(e) that may allow
such expenses to be deductible. These final regulations
affect taxpayers who pay or incur expenses for meal and
entertainment expenses.

T.D. 9925, page 296.

These final regulations provide guidance under section
274 of the Internal Revenue Code (Code) regarding certain amendments made to section 274 by the Tax Cuts and
Jobs Act of 2017 (TCJA). These final regulations address

January 11, 2021

2

Bulletin No. 2021–2

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

January 11, 2021 

Bulletin No. 2021–2

Part I
Section 1274.—
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
(Also Sections 42, 280G, 382, 467, 468, 482, 483,
1288, 7520, 7872.)

Rev. Rul. 2021-1
This revenue ruling provides various
prescribed rates for federal income tax
purposes for January 2021 (the current

Annual
AFR
110% AFR
120% AFR
130% AFR

0.14%
0.15%
0.17%
0.18%

AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR

0.52%
0.57%
0.62%
0.68%
0.78%
0.91%

AFR
110% AFR
120% AFR
130% AFR

1.35%
1.50%
1.63%
1.77%

Short-term adjusted AFR
Mid-term adjusted AFR
Long-term adjusted AFR

January 11, 2021

month). Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month for
purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the appropriate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. Howev-

er, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, shall not be less than 9%. Table
5 contains the federal rate for determining
the present value of an annuity, an interest
for life or for a term of years, or a remainder or a reversionary interest for purposes
of section 7520. Finally, Table 6 contains
the deemed rate of return for transfers
made during calendar year 2021 to pooled
income funds described in section 642(c)
(5) that have been in existence for less
than 3 taxable years immediately preceding the taxable year in which the transfer
was made.

REV. RUL. 2021-1 TABLE 1
Applicable Federal Rates (AFR) for January 2021
Period for Compounding
Semiannual
Quarterly
Short-term
0.14%
0.14%
0.15%
0.15%
0.17%
0.17%
0.18%
0.18%
Mid-term
0.52%
0.52%
0.57%
0.57%
0.62%
0.62%
0.68%
0.68%
0.78%
0.78%
0.91%
0.91%
Long-term
1.35%
1.35%
1.49%
1.49%
1.62%
1.62%
1.76%
1.76%

Annual
0.11%
0.39%
1.03%

REV. RUL. 2021-1 TABLE 2
Adjusted AFR for January 2021
Period for Compounding
Semiannual
0.11%
0.39%
1.03%

294

Quarterly
0.11%
0.39%
1.03%

Monthly
0.14%
0.15%
0.17%
0.18%
0.52%
0.57%
0.62%
0.68%
0.78%
0.91%
1.35%
1.49%
1.61%
1.75%

Monthly
0.11%
0.39%
1.03%

Bulletin No. 2021–2

REV. RUL. 2021-1 TABLE 3
Rates Under Section 382 for January 2021
Adjusted federal long-term rate for the current month
Long-term tax-exempt rate for ownership changes during the current month (the highest of
the adjusted federal long-term rates for the current month and the prior two months.)

1.03%
1.03%

REV. RUL. 2021-1 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for January 2021
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
7.21%
Appropriate percentage for the 30% present value low-income housing credit
3.09%
REV. RUL. 2021-1 TABLE 5
Rate Under Section 7520 for January 2021
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest
REV. RUL. 2021-1 TABLE 6
Deemed Rate for Transfers to New Pooled Income Funds During 2021
Deemed rate of return for transfers during 2021 to pooled income funds that have been in
existence for less than 3 taxable years

Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of January 2021. See
Rev. Rul. 2021-1, page 294.

Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of January 2021. See Rev. Rul.
2021-1, page 294.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

.6%

2.2%

Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of January 2021. See Rev. Rul.
2021-1, page 294.

Section 7872.—Treatment
of Loans With BelowMarket Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2021. See Rev. Rul. 2021-1, page 294.

Bulletin No. 2021–2

295

January 11, 2021

Announcement Correcting
TD 9925
26 CFR 1.274-11; 26 CFR 1.274-12

T.D. 9925
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Meals and Entertainment
Expenses Under Section
274; Correction
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations; correction.
SUMMARY: This document contains
corrections to the final regulations (Treasury Decision 9925) that published in the
Federal Register on October 9, 2020. The
final regulations provide guidance under
section 274 of the Internal Revenue Code
(Code) regarding certain recent amendments made to that section. Specifically,
the final regulations address the elimination of the deduction under section 274
for expenditures related to entertainment,
amusement, or recreation activities, and
provide guidance to determine whether an
activity is of a type generally considered
to be entertainment.
DATES: These corrections are effective
on December 18, 2020 and applicable for
taxable years that begin on or after October 9, 2020.
FOR FURTHER INFORMATION CONTACT: Patrick Clinton of the Office of the
Associate Chief Counsel (Income Tax and
Accounting), (202) 317–7005 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9925) that
are the subject of this correction are issued

January 11, 2021

under section 274 of the Internal Revenue
Code.
Need for Correction
As published the final regulations (TD
9925) contain errors that need to be corrected.
Correction of Publication
Accordingly, the final regulations (TD
9925), that are the subject of FR Doc.
2020–21990, published on October 9,
2020 (85 FR 64026), are corrected as follows:
1. On page 64031, third column, the
second line, the language “in Sutherland
Lumber” is corrected to read “in Sutherland Lumber-Southwest”.
2. On page 64031, third column, the
ninth line of the second full paragraph, the
language “§ 1.274–10(a)(2)(ii)(C)(2)” is
corrected to read “§ 1.274–10(a)(2)(ii)(C)
(2)”.
3. On page 64032, second column, the
second line, the language “or gross income is zero, whether zero is” is corrected to read “or gross income is zero (other
than due to a reimbursement by the recipient), whether zero is”.
4. On page 64032, second column, the
thirteenth line from the top of the page, the
language “(e)(9) do not apply.” is corrected to read “(e)(9) generally do not apply.”.
5. On page 64032, second column, the
thirteenth line from the top of the page,
the language “Similarly, the exceptions
in section 274(e)(2) and (e)(9) do not apply if” is corrected to read “However, the
exceptions in section 274(e)(2) and (e)
(9) will apply if the recipient reimburses the taxpayer for a portion of the value of the food or beverages even if the
value exceeding the reimbursed amount
is properly excluded from the recipient’s
compensation and wages or gross income. In this case, however, the taxpayer
must apply the dollar-for-dollar rule as
described in §1.274-12(c)(2)(i)(D). In
cases in which”.
6. On page 64032, second column, the
second and last sentence from the bottom
of the first partial paragraph, remove the
language “. In that case, however,”.
7. On page 64032, third column, the
third line of the second full paragraph, the

296

language “regulations confirm” is corrected to read “regulations confirmed”.
8. On page 64032, third column, the
twelfth line of the second full paragraph,
the language “demonstrates” is corrected
to read “demonstrated”.
Crystal Pemberton,
Senior Federal Register Liaison,
Publications and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel,
(Procedure and Administration).
(Filed by the Office of the Federal Register on December 17, 2020, 8:45 a.m., and published in the issue of the Federal Register for December 18, 2020,
85 F.R. 82355)

Section 274. —
Disallowance of Certain
Entertainment, Gift and
Travel Expenses
26 CFR 1.274-1-11, 12: Meals and Entertainment
Expenses.

T.D. 9925
DEPARTMENT OF
TREASURY
Internal Revenue Service
26 CFR Part 1
Meals and Entertainment
Expenses
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains
final regulations that provide guidance
under section 274 of the Internal Revenue Code (Code) regarding certain recent
amendments made to that section. Specifically, the final regulations address the
elimination of the deduction under section
274 for expenditures related to entertainment, amusement, or recreation activities,
and provide guidance to determine whether an activity is of a type generally consid-

Bulletin No. 2021–2

ered to be entertainment. The final regulations also address the limitation on the
deduction of food and beverage expenses
under section 274(k) and (n), including
the applicability of the exceptions under
section 274(e)(2), (3), (4), (7), (8), and (9).
The final regulations affect taxpayers who
pay or incur expenses for meals or entertainment.
DATES: Effective Date: These regulations
are effective on October 9, 2020.
Applicability Date: These regulations apply for taxable years that begin on or after
October 9, 2020.
FOR FURTHER INFORMATION CONTACT: Patrick Clinton of the Office of the
Associate Chief Counsel (Income Tax and
Accounting), (202) 317-7005 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations under section 274 of the Code that
amend the Income Tax Regulations (26
CFR part 1). In general, section 274 limits
or disallows deductions for certain meal
and entertainment expenditures that otherwise would be allowable under chapter 1
of the Code (chapter 1), primarily under
section 162(a), which allows a deduction
for ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business.
On December 22, 2017, section 274
was amended by section 13304 of Public
Law 115-97 (131 Stat. 2054), commonly
referred to as the Tax Cuts and Jobs Act,
(TCJA) to revise the rules for deducting
expenditures for meals and entertainment,
effective for amounts paid or incurred after December 31, 2017.
On February 26, 2020, the Department
of the Treasury (Treasury Department)
and the IRS published a notice of proposed rulemaking (REG-100814-19) in
the Federal Register (85 FR 11020) containing proposed regulations under section
274 to implement certain of the TCJA’s
amendments to section 274 (proposed regulations). The proposed regulations would
update existing regulations in §1.274-2

Bulletin No. 2021–2

by adding a new section at §1.274-11 for
entertainment expenditures. The proposed
regulations would also add a new section
at §1.274-12 to address the limitations on
food or beverage expenses under section
274(k) and (n), including the application
of the exceptions in section 274(e)(2), (3),
(4), (7), (8), and (9). Pending the issuance
of these final regulations, taxpayers were
permitted to rely upon the proposed regulations for entertainment and food or
beverage expenses, as applicable, paid or
incurred after December 31, 2017.
The Treasury Department and the IRS
did not receive any requests to speak at
a public hearing on the proposed regulations. Therefore, the scheduled public
hearing was cancelled. The Treasury Department and the IRS received 14 written
and electronic comments in response to
the proposed regulations. All comments
were considered and are available at
https://www.regulations.gov or upon request. The comments addressing the proposed regulations are summarized in the
Summary of Comments and Explanation
of Revisions section. However, comments
recommending statutory revisions or addressing issues outside the scope of these
final regulations are not discussed in this
preamble. After full consideration of the
comments, this Treasury decision adopts
the proposed regulations with modifications in response to certain comments, as
described in the Summary of Comments
and Explanation of Revisions section.
1. Business Meals and Entertainment
Section 274(a)(1)(A) generally disallows a deduction for any item with respect to an activity of a type considered to
constitute entertainment, amusement, or
recreation (entertainment expenditures).
However, prior to the amendment by the
TCJA, section 274(a)(1)(A) provided exceptions to that disallowance if the taxpayer established that: (1) the item was
directly related to the active conduct of
the taxpayer’s trade or business (directly
related exception); or (2) in the case of
an item directly preceding or following
a substantial and bona fide business discussion (including business meetings at
a convention or otherwise), the item was
associated with the active conduct of the
taxpayer’s trade or business (business

297

discussion exception). Section 274(e)(1)
through (9) also provide exceptions to
the rule in section 274(a) that disallows a
deduction for entertainment expenditures.
The TCJA did not change the application
of the section 274(e) exceptions to entertainment expenditures.
Section 274(a)(1)(B) disallows a deduction for any item with respect to a facility used in connection with an activity
referred to in section 274(a)(1)(A). Section 274(a)(2) provides that, for purposes
of applying section 274(a)(1), dues or fees
to any social, athletic, or sporting club or
organization shall be treated as items with
respect to facilities. Section 274(a)(3) disallows a deduction for amounts paid or
incurred for membership in any club organized for business, pleasure, recreation, or
other social purpose.
Prior to amendment by the TCJA, section 274(n)(1) generally limited the deduction of food or beverage expenses and
entertainment expenditures to 50 percent
of the amount that otherwise would have
been allowable. Thus, under prior law,
taxpayers could deduct 50 percent of meal
expenses, and 50 percent of entertainment
expenditures that met the directly related
or business discussion exception. Distinguishing between meal expenses and entertainment expenditures was unnecessary
for purposes of the 50 percent limitation.
Section 13304(a)(1) of the TCJA repealed the directly related and business
discussion exceptions to the general prohibition on deducting entertainment expenditures in section 274(a)(1)(A). Also, section 13304(a)(2)(D) of the TCJA amended
the 50 percent limitation in section 274(n)
(1) to remove the reference to entertainment expenditures. Thus, entertainment
expenditures are no longer deductible unless one of the nine exceptions to section
274(a) in section 274(e) applies.
While the TCJA eliminated the deduction for entertainment expenses, Congress
did not amend the provisions relating to
the deductibility of business meals. Thus,
taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating
their trade or business, including meals
consumed by employees on work travel. See H.R. Rep. No. 115-466, at 407
(2017) (Conf. Rep.). However, as before
the TCJA, no deduction is allowed for the

January 11, 2021

expense of any food or beverages unless
(a) the expense is not lavish or extravagant under the circumstances, and (b) the
taxpayer (or an employee of the taxpayer)
is present at the furnishing of the food or
beverages. See section 274(k).
Prior to amendment by the TCJA,
section 274(d) provided substantiation
requirements for deductions under section 162 or 212 for any traveling expense
(including meals and lodging while away
from home), and for any item with respect
to an activity of a type considered to constitute entertainment, amusement, or recreation or with respect to a facility used
in connection with such activity. Section
13304(a)(2)(A) of the TCJA repealed the
substantiation requirements for entertainment expenditures. Traveling expenses
(including meals and lodging while away
from home), however, remain subject to
the section 274(d) substantiation requirements. Food and beverage expenses are
subject to the substantiation requirements
under section 162 and the requirement to
maintain books and records under section
6001.
On October 15, 2018, the Treasury Department and the IRS published Notice
2018-76, 2018-42 I.R.B. 599, providing
transitional guidance on the deductibility
of expenses for certain business meals and
requesting comments for future guidance
to further clarify the treatment of business
meal expenses and entertainment expenditures under section 274. Under the notice, taxpayers may deduct 50 percent of
an otherwise allowable business meal expense if: (1) the expense is an ordinary and
necessary expense under section 162(a)
paid or incurred during the taxable year
in carrying on any trade or business; (2)
the expense is not lavish or extravagant
under the circumstances; (3) the taxpayer,
or an employee of the taxpayer, is present
at the furnishing of the food or beverages;
(4) the food and beverages are provided
to a current or potential business customer, client, consultant, or similar business
contact; and (5) in the case of food and
beverages provided at or during an entertainment activity, the food and beverages
are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost
of the entertainment on one or more bills,
invoices, or receipts. The notice provides

January 11, 2021

that the entertainment disallowance rule
may not be circumvented through inflating the amount charged for food and beverages.
2. Travel Meals
Section 274(n)(1) generally limits the
deduction of food or beverage expenses,
including expenses for food or beverages consumed while away from home, to
50 percent of the amount that otherwise
would have been allowable, unless one
of the six exceptions to section 274(n) in
section 274(e) applies. However, no deduction is allowed for the expense of any
food or beverages unless: (1) the expense
is not lavish or extravagant under the circumstances; and (2) the taxpayer (or an
employee of the taxpayer) is present at the
furnishing of the food or beverages. See
section 274(k). Section 274(d) provides
substantiation requirements for traveling
expenses, including food and beverage expenses incurred while on business travel
away from home.
Section 274(m) provides additional
limitations on travel expenses, including expenses for meals consumed while
away from home. Section 274(m)(1) generally limits the deduction for luxury water transportation expenses to twice the
highest federal per diem rate allowable
at the time of travel, and section 274(m)
(2) generally disallows a deduction for
expenses for travel as a form of education. Section 274(m)(3) provides that
no deduction is allowed under chapter
1 (other than section 217) for travel expenses paid or incurred with respect to
a spouse, dependent, or other individual
accompanying the taxpayer (or an officer
or employee of the taxpayer) on business
travel, unless: (1) the spouse, dependent,
or other individual is an employee of the
taxpayer; (2) the travel of the spouse,
dependent, or other individual is for a
bona fide business purpose; and (3) such
expenses would otherwise be deductible
by the spouse, dependent, or other individual.
3. Employer-Provided Meals
Prior to amendment by the TCJA,
section 274(n)(1) generally limited the
deduction for food or beverage expenses

298

to 50 percent of the amount that otherwise would have been allowable, subject to an exception in section 274(n)(2)
(B) in the case of an expense for food
or beverages that is excludable from
the gross income of the recipient under
section 132 by reason of section 132(e),
relating to de minimis fringes. Section
132(e)(1) defines “de minimis fringe”
as any property or service the value of
which is, after taking into account the
frequency with which similar fringes are
provided by the employer to its employees, so small as to make accounting for
it unreasonable or administratively impracticable. Section 132(e)(2) provides
that the operation by an employer of any
eating facility for employees is treated as
a de minimis fringe if (1) the facility is
located on or near the business premises
of the employer, and (2) revenue derived
from the facility normally equals or exceeds the direct operating costs of the facility. Thus, under prior law, employers
generally were allowed to fully deduct
an expense for food or beverages provided to their employees if the amount was
excludable from the gross income of the
employee as a de minimis fringe. However, the TCJA repealed section 274(n)
(2)(B), meaning that expenses for food
or beverages that are de minimis fringes
under section 132(e) are no longer excepted from section 274(n)(1). As a result, these expenses, like other food or
beverage expenses generally, are subject
to the 50 percent limitation unless one of
the six exceptions to section 274(n) in
section 274(e) applies.
The TCJA also added section 274(o)
that, effective for amounts paid or incurred after December 31, 2025, disallows a deduction for (1) any expense for
the operation of an employer-operated
facility described in section 132(e)(2),
and any expense for food or beverages,
including under section 132(e)(1), associated with such facility, or (2) any expense for meals provided to an employee
for the convenience of the employer, as
described in section 119(a). Thus, beginning with amounts paid or incurred
in 2026, expenses for food or beverages
provided to employees, as well as expenses for the operation of certain eating facilities for employees, will be fully
nondeductible.

Bulletin No. 2021–2

4. Section 274(e) Exceptions to Section
274(k) and (n)
Section 274(k)(2)(A) and (n)(2)(A)
provide that the limitations on the deduction of food or beverage expenses in
section 274(k)(1) and (n)(1), respectively,
do not apply if the expense is described
in paragraph (2), (3), (4), (7), (8), or (9)
of section 274(e). Expenses described
in paragraph (1), (5), and (6) of section
274(e) are not exceptions to the limitations on the deduction of food or beverage
expenses in section 274(k)(1) and (n)(1).
However, they are exceptions to the disallowance of the deduction of entertainment
expenses in section 274(a).
Section 274(e)(2) applies to expenses for goods, services, and facilities to
the extent that the expenses are treated
as compensation to the recipient. Section
274(e)(3) applies to expenses incurred
by a taxpayer in connection with the performance of services for an employer or
other person under a reimbursement or
other expense allowance arrangement.
Section 274(e)(4) applies to expenses for
recreational, social, or similar activities
for employees. Section 274(e)(7) applies
to expenses for goods, services, and facilities made available to the general public.
Section 274(e)(8) applies to expenses for
goods or services that are sold by the taxpayer in a bona fide transaction for an adequate and full consideration in money or
money’s worth. Section 274(e)(9) applies
to expenses for goods, services, and facilities to the extent that the expenses are
treated as income to a person other than
an employee.
Summary of Comments and
Explanation of Revisions
1. Entertainment Expenditures
The final regulations restate the statutory rules under section 274(a), at §1.27411(a), including the application of the entertainment deduction disallowance rule
to dues or fees to any social, athletic, or
sporting club or organization. The existing
definition of entertainment in §1.274-2(b)
(1), with minor modifications to remove
outdated language, is incorporated into
the final regulations, at §1.274-11(b)(1).
The final regulations provide that for pur-

Bulletin No. 2021–2

poses of section 274(a), the term “entertainment” does not include food or beverages unless the food or beverages are
provided at or during an entertainment
activity and the costs of the food or beverages are not separately stated from the
entertainment costs. The final regulations
do not affect the application of the special
rules in §1.274-10 to expenses related to
aircraft used for entertainment.
A. Section 274(e) Exceptions to Section
274(a)
The final regulations, at § 1.274-11(c),
confirm the continued application of the
nine exceptions in section 274(e) to entertainment expenditures otherwise disallowed by section 274(a). The application
of section 274(e) to food or beverage
expenses is discussed in part 2.E. of this
Summary of Comments and Explanation
of Revisions section, which discusses the
exceptions under section 274(e) to section
274(k) and (n).
A commenter on the proposed regulations requested that the Treasury Department and the IRS clarify that for purposes
of the section 274(e)(8) exception to the
entertainment deduction limitations in
section 274(a) for goods or services sold
by the taxpayer, the goods or services may
be sold to an employee of the taxpayer in
a bona fide transaction for an adequate
and full consideration in money or money’s worth. The Treasury Department and
the IRS decline to adopt this suggestion
because the section 274(e)(8) exception
to the entertainment disallowance is outside the scope of these regulations. The
proposed regulations and these final regulations were initiated in response to the
changes made to section 274 by the TCJA
and generally are limited to addressing
those changes. In particular, with regard
to entertainment expenditures, the final
regulations under §1.274-11 primarily
distinguish between meals and entertainment, as that distinction is now relevant,
for purposes of determining whether the
deduction of a particular expense is disallowed entirely or is limited to 50 percent.
However, the TCJA did not change the
application of the section 274(e) exceptions to entertainment expenditures. Thus,
other than confirming that the section
274(e) exceptions continue to apply to

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entertainment expenditures, the final regulations do not provide rules addressing
how the section 274(e) exceptions apply
to entertainment expenditures. Taxpayers
may, however, continue to rely upon the
existing rules and examples in §1.274-2 to
the extent they are not superseded by the
TCJA or other legislation and are not inconsistent with the final regulations.
B. Separately Stated Food or Beverages
not Entertainment
The final regulations substantially incorporate the guidance in Notice 2018-76
to distinguish between entertainment expenditures and food or beverage expenses
in the context of business meals provided
at or during an entertainment activity. In
addition, the final regulations generally apply the guidance in Notice 2018-76
to all food or beverages, including travel meals and employer-provided meals,
provided at or during an entertainment
activity. The final regulations also clarify
the rules applicable to food or beverages
provided at or during an entertainment activity.
Notice 2018-76 explains that in the
case of food and beverages provided at
or during an entertainment activity, the
taxpayer may deduct 50 percent of an otherwise allowable business expense if the
food and beverages are purchased separately from the entertainment, or if the cost
of the food and beverages is stated separately from the cost of the entertainment
on one or more bills, invoices, or receipts.
The notice provides that the entertainment
disallowance rule may not be circumvented through inflating the amount charged
for food and beverages. The final regulations clarify this requirement by providing
that the amount charged for food or beverages on a bill, invoice, or receipt must
reflect the venue’s usual selling cost for
those items if they were to be purchased
separately from the entertainment, or must
approximate the reasonable value of those
items.
The final regulations provide that in
cases where the food or beverages provided at or during an entertainment activity are not purchased separately from the
entertainment, and where the cost of the
food or beverages is not stated separately from the cost of the entertainment on

January 11, 2021

one or more bills, invoices, or receipts,
no allocation can be made and the entire
amount is a nondeductible entertainment
expenditure. Finally, in accordance with
the TCJA’s amendments to section 274(a)
(1) specifically repealing the “directly
related” and “business discussion” exceptions to the general disallowance rule
for entertainment expenditures, the final
regulations clarify that the entertainment
disallowance rule applies whether or not
the expenditure for the activity is related
to or associated with the active conduct of
the taxpayer’s trade or business.
A commenter suggested that the final
regulations provide that the consumption
of food and beverages is not entertainment
in the case of both business and nonbusiness activities and include an example of
a specified individual consuming food
and beverages while traveling on an employer-provided aircraft to visit family
members for nonbusiness purposes. The
specific question presented in this comment relates to whether air travel is an
entertainment activity and is addressed in
the existing rules in §1.274-10. Therefore,
this question is not addressed in the final
regulations. In addition, §1.274-11(b)(1)
(ii) provides that the term entertainment
does not include food or beverages unless
the food or beverages are provided at or
during an entertainment activity and are
not purchased separately from the entertainment.
2. Food or Beverage Expenses
A. Business Meal Expenses
The final regulations substantially incorporate the guidance in Notice 2018-76
addressing business meals provided at or
during an entertainment activity. The final
regulations also incorporate other statutory requirements taxpayers must meet
to deduct 50 percent of an otherwise allowable food or beverage expense. Specifically, the expense must not be lavish or
extravagant under the circumstances, and
the taxpayer, or an employee of the taxpayer, must be present at the furnishing of
the food or beverages.
The final regulations also address the
general requirement in Notice 2018-76
that the food and beverages be provided to
a business contact, which was described in

January 11, 2021

the notice as a “current or potential business customer, client, consultant, or similar business contact.” This requirement
is to ensure that the meal expenses are directly connected with or pertaining to the
taxpayer’s trade or business, as required
under section 162. One commenter on
Notice 2018-76 requested a definition of
“potential business contact,” suggesting
that the term could be interpreted broadly to include almost anyone. In response
to the comment, and to conform the rule
more closely to the trade or business requirement in section 162, the proposed
regulations follow the definition of “business associate” as currently provided in
§1.274-2(b)(2)(iii). The final regulations
adopt this definition of “business associate” in §1.274-12(b)(3). Thus, the final
regulations provide that the food or beverages must be provided to a “person with
whom the taxpayer could reasonably expect to engage or deal in the active conduct
of the taxpayer’s trade or business such as
the taxpayer’s customer, client, supplier,
employee, agent, partner, or professional
adviser, whether established or prospective.” Accordingly, the final regulations
apply this definition to employer-provided
food or beverage expenses by considering
employees as a type of business associate
as well as to the deduction for expenses
for meals provided by a taxpayer to both
employees and non-employee business associates at the same event.
A commenter on the proposed regulations asked whether the Treasury Department and the IRS have legal authority to
allow taxpayers to claim deductions for
business meal expenses that have been
considered part of entertainment since the
enactment of section 274. The commenter acknowledged that the legislative history of the TCJA provides that taxpayers
may still generally deduct 50 percent of
the food and beverage expenses associated with operating their trade or business
(e.g., meals consumed by employees on
work travel). H.R. Rep No. 115-466 at
407. However, the commenter argued that
the legislative history merely recognizes
that travel meals remain 50 percent deductible. The commenter further argued
that the term “entertainment” clearly encompasses many business meals and that
the proposed regulations unsettle the longstanding position that expenditures for the

300

personal enjoyment of an individual fall
within the ordinary meaning of “entertainment.”
The Treasury Department and the IRS
believe that Congress, in amending section 274 in the TCJA, intended that expenses for business meals be considered
food or beverage expenses associated with
operating a taxpayer’s trade or business,
and therefore generally remain 50 percent
deductible. The Treasury Department and
the IRS acknowledge that, prior to the
TCJA, some meals were considered to
be entertainment. However, prior to the
TCJA, neither section 274 nor the regulations under section 274 attempted to define meal expenses or to distinguish meal
expenses from entertainment expenses. In
considering the comment, the Treasury
Department and the IRS believe that the
proposed regulations are consistent with
the plain reading of section 274 after the
TCJA, which clearly contemplates different treatment for meal expenses and
entertainment expenses. In addition, the
existing regulatory definition of entertainment relies upon an objective test to
determine whether an activity is of a type
generally considered to constitute entertainment. Providing that business meals
are not of a type generally considered to
constitute entertainment results in an administrable rule that does not depend on
subjective factors such as whether the taxpayer enjoys the business meal. Thus, the
final regulations adopt the proposed rule
providing that business meals generally
remain 50 percent deductible. The Treasury Department and the IRS believe that
the final regulations provide a rule that is
legally supportable and that draws a clear
line between meals and entertainment that
taxpayers can understand and the IRS can
administer.
One commenter also asked whether
the proposed regulations were intended
to provide new guidance under section
162(a), specifically as to the definition of
“ordinary and necessary expense.” The
proposed regulations provide guidance
only under section 274 and are not intended to provide guidance under section
162. In response to the comment, the final
regulations modify Examples 1 and 2 in
proposed §1.274-12(a)(3) by removing
any mention of a discussion that takes
place during lunch because the facts al-

Bulletin No. 2021–2

ready explain that in each example, the
food or beverage expenses are assumed
to be ordinary and necessary expenses
under section 162(a). In addition, the final regulations clarify, as necessary, in the
introductory language to the examples in
§1.274-11 and §1.274-12 that the examples assume that the underlying expenses
are deductible under section 162.
Two commenters requested that the
final regulations add an example addressing the treatment of expenses for food
and beverages provided to attendees at
a business meeting, such as a conference
for clients or a training seminar for employees. In response to these comments,
the final regulations add two new examples to §1.274-12(a)(3) to address these
scenarios.
A commenter also asked whether under
proposed §1.274-12(a), a taxpayer may
claim a 50 percent deduction for food or
beverages provided to the taxpayer (or an
employee of the taxpayer), as well as food
or beverages provided to a business associate. The commenter noted that proposed
§1.274-12(a)(1) refers to “food or beverages provided to a business associate,”
raising a question about whether the rule
applies to food or beverages provided to
the taxpayer or the taxpayer’s employees.
In addition, §1.274-12(a)(1) of the proposed regulations refers to food or beverages provided “to another person or persons.” It was intended that the 50 percent
deduction applies to food and beverages
provided to the taxpayer (or an employee
of the taxpayer), as well as a business associate or another person. In response to
the comment, the final regulations revise
§1.274-12(a)(1) to remove the reference
to food or beverages being provided “to
another person or persons.” In addition, as
discussed in part 2.A. of this Summary of
Comments and Explanation of Revisions,
the final regulations include employees in
the definition of “business associate” (as
defined in §1.274-12(b)(3)). Finally, to
make clear that the rules in §1.274-12(a)
(1) also apply to food or beverages provided to a taxpayer such as a sole proprietor
or other business owner, the final regulations revise §1.274-12(a)(1)(iii) to refer
to food or beverages provided “to the taxpayer or a business associate.”
One commenter asked whether a sole
proprietor can deduct the cost of meals

Bulletin No. 2021–2

when working throughout the day. As explained in the Background section of this
preamble, section 274 limits or disallows
deductions for certain meal and entertainment expenditures that otherwise would
be allowable under chapter 1, primarily
under section 162(a), which allows a deduction for ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business.
The requirements imposed by section 274
are in addition to the requirements for deductibility imposed by other provisions of
the Code. If a taxpayer intends to claim
a deduction for an expenditure for meals
or entertainment, the taxpayer must first
establish that the expenditure is otherwise
allowable as a deduction under chapter 1
before the provisions of section 274 become applicable. Therefore, the sole proprietor must first establish that the food
or beverage expense is deductible under
chapter 1 before section 274 would apply.
For example, if the sole proprietor can establish that the food or beverage expenses
are ordinary and necessary expenses under section 162(a) that are paid or incurred
during the taxable year in carrying on a
trade or business, the sole proprietor may
deduct 50 percent of the food or beverage
expenses under section 274(k) and (n) and
§1.274-12(a) of the final regulations if: (1)
the expenses are not lavish or extravagant;
(2) the sole proprietor, or an employee of
the sole proprietor, is present at the furnishing of the food or beverages; and (3)
the food or beverages are provided to the
sole proprietor or a business associate (as
defined in §1.274-12(b)(3)).
B. Travel Meal Expenses
Although the TCJA did not specifically
amend the rules for travel expenses, the
final regulations are intended to provide
comprehensive rules for food and beverage expenses and thus, apply the general rules for meal expenses from Notice
2018-76 and the proposed regulations, to
travel meals. In addition, the final regulations incorporate the substantiation requirements in section 274(d), unchanged
by the TCJA, to travel meals. Finally, the
final regulations apply the limitations in
section 274(m)(3) to expenses for food or
beverages paid or incurred while on travel
for spouses, dependents or other individ-

301

uals accompanying the taxpayer (or an
officer or employee of the taxpayer) on
business travel. These limitations do not
apply to deductions for moving expenses
under section 217. However, the TCJA
amended section 217 to suspend the deduction for moving expenses for taxable
years beginning after December 31, 2017,
and before January 1, 2026, except with
respect to certain members of the Armed
Forces. Thus, the final regulations revise
the reference to section 217 to reflect that
amendment.
One commenter asked how the proposed regulations affect employees that
are paid a per diem rate for travel expenses and are subject to the hours of service
limitations of the Department of Transportation. The proposed regulations describe
and clarify the statutory requirements of
section 274(a), 274(k), and 274(n) for entertainment and food or beverage expenses, as well as the applicability of certain
exceptions under section 274(e) to food
or beverage expenses. The TCJA did not
change the rules for using a per diem rate
to substantiate, under section 274(d), the
amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Thus, neither the
proposed regulations nor the final regulations address the substantiation rules.
C. Other Food or Beverage Expenses
The final regulations apply the business meal guidance in Notice 2018-76,
as revised in the proposed regulations,
to food or beverage expenses generally.
Under section 274(n)(1), the deduction
for food or beverage expenses generally is limited to 50 percent of the amount
that would otherwise be allowable. Prior
to the TCJA, under section 274(n)(2)(B),
expenses for food or beverages that were
excludable from employee income as
de minimis fringe benefits under section
132(e) were not subject to the 50 percent deduction limitation under section
274(n)(1) and could be fully deducted.
The TCJA repealed section 274(n)(2)(B)
so that expenses for food or beverages
excludable from employee income under
section 132(e) are subject to the section
274(n)(1) deduction limitation unless another exception under section 274(n)(2)
applies.

January 11, 2021

Under section 274(k)(1), in order for
food or beverage expenses to be deductible the food or beverages must not be
lavish or extravagant under the circumstances and the taxpayer or an employee
of the taxpayer must be present at the furnishing of the food or beverages. However, as discussed in the Background section
of this preamble, section 274(e) provides
six exceptions to the limitations on the
deduction of food or beverages in section
274(k)(1) and (n)(1). The final regulations
explain how those exceptions apply. The
Background section of this preamble also
explains that the exceptions in section
274(e)(1), (e)(5), and (e)(6) do not apply
to food or beverages expenses. Section
1.274-12(a)(3) of the final regulations
adds an example illustrating that the exception in section 274(e)(5) does not apply to food or beverage expenses that are
directly related to business meetings of a
taxpayer’s employees.
In response to comments that the
Treasury Department and the IRS received after enactment of the TCJA, the
final regulations address several scenarios involving the deductibility of food
or beverage expenses. For example,
commenters requested guidance on the
deductibility of expenses for: (1) food
or beverages provided to food service
workers who consume the food or beverages while working in a restaurant or
catering business; (2) snacks available
to employees in a pantry, break room, or
copy room; (3) refreshments provided
by a real estate agent at an open house;
(4) food or beverages provided by a seasonal camp to camp counselors; (5) food
or beverages provided to employees at a
company cafeteria; and (6) food or beverages provided at company holiday parties and picnics.
D. Definitions
The final regulations provide that the
deduction limitation rules generally apply
to all food and beverages, whether characterized as meals, snacks, or other types of
food or beverage items. In addition, unless
one of six exceptions under section 274(e)
applies, the deduction limitations apply
regardless of whether the food or beverages are treated as de minimis fringe benefits
under section 132(e).

January 11, 2021

The final regulations define food or
beverage expenses to mean the cost of
food or beverages, including any delivery fees, tips, and sales tax. In the case
of employer-provided meals at an eating
facility, food or beverage expense do not
include expenses for the operation of the
eating facility such as salaries of employees preparing and serving meals and other
overhead costs.
A commenter requested clarification
that the cost of transportation to a meal is
not included in food or beverage expenses. The Treasury Department and the IRS
considered this comment and note that
food or beverage expenses under §1.27412(b)(2) of the final regulations means the
full cost of food or beverages, including
any delivery fees, tips, and sales tax. Indirect expenses, including the cost of transportation to a meal, are not included in the
definition.
E. Section 274(e) Exceptions to Section
274(k) and (n)
Section 274(k)(2)(A) and (n)(2)(A)
provide that the limitations on deductions
in section 274(k)(1) and (n)(1), respectively, do not apply to any expense described in section 274(e)(2), (3), (4), (7),
(8), and (9). Section 1.274-12(c) of the
final regulations, therefore, provides that
the deduction limitations are not applicable to expenditures for business meals,
travel meals, or other food or beverages
that fall within one of these exceptions.
i. Expenses Treated as Compensation
under Section 274(e)(2) or (e)(9)
Pursuant to section 274(e)(2), the final
regulations provide that the limitations in
section 274(k)(1) and (n)(1) do not apply
to expenditures for food or beverages provided to an employee of the taxpayer to
the extent the taxpayer treats the expenses
as compensation to the employee on the
taxpayer’s income tax return as originally filed, and as wages to the employee for
purposes of withholding under chapter 24
of the Code, relating to collection of income tax at source on wages.
Pursuant to section 274(e)(9), the final
regulations provide that the limitations in
section 274(k)(1) and (n)(1) do not apply
to expenses for food or beverages provid-

302

ed to a person who is not an employee of
the taxpayer to the extent the expenses are
includible in the gross income of the recipient of the food or beverages as compensation for services rendered or as a
prize or award under section 74.
The exceptions in section 274(e)(2) related to employees and in section 274(e)
(9) related to non-employees have been
interpreted as allowing a taxpayer to deduct the full amount of an expense if the
expense has properly been included in
the compensation and wages of the employee, or gross income of the recipient,
even if the amount of the expense exceeds
the amount included in compensation or
income. See Sutherland Lumber–Southwest Inc. v. Commissioner, 114 T.C. 197
(2000), affd., 255 F.3d 495 (8th Cir. 2001),
acq., AOD 2002-02 (February 11, 2002).
In 2004, Congress reversed the result in
the Sutherland Lumber-Southwest case by
enacting section 274(e)(2)(B) with regard
to specified individuals. Thus, with regard
to employees or non-employees who are
specified individuals, section 274(e)(2)
(B) provides an exception to the section
274(n) limitation only “to the extent that
the expenses do not exceed the amount of
the expenses which” are treated as compensation and wages to the employee or as
income to a non-employee. This methodology is also referred to in this preamble
as the “dollar-for-dollar” methodology.
The Treasury Department and the
IRS are aware that some taxpayers may
attempt to claim a full deduction under
section 274(e)(2) or (e)(9) by including a
value that is less than the amount required
to be included under §1.61-21, which provides the rules for valuation of fringe benefits, or by purportedly including a value
of zero, as compensation and wages to
the employee, or as includible in gross income by a person who is not an employee
of the taxpayer. As a result, the proposed
regulations provide that expenses for food
or beverages for which the taxpayer calculates a value that is less than the amount
required to be included in gross income
under §1.61-21, or for which the amount
required to be included in gross income
is zero, will not be considered as having been treated as compensation and as
wages to the employee, or as includible in
gross income by a recipient of the food or
beverages who is not an employee of the

Bulletin No. 2021–2

taxpayer, for purposes of section 274(e)
(2) and (e)(9).
Commenters argued that the proposed
rule disallowing the application of section
274(e)(2) and (e)(9) to expenses for which
an improper amount is included in compensation and wages or in gross income,
as applicable, is unduly harsh given the
difficulty in determining the value of food
or beverages under §1.61-21 and the possibility of good faith errors. In addition, a
commenter noted that neither the “to the
extent that” language in section 274(e)(2)
(A) nor the holding in Sutherland Lumber-Southwest support applying an “all or
nothing” rule against the taxpayer.
The Treasury Department and the IRS
agree that the “all or nothing” rule included in the proposed regulations may
lead to unduly harsh results. Therefore,
in response to these comments, the Treasury Department and the IRS revised the
rules in proposed §1.274-12(c)(2)(i) to
allow a taxpayer to apply section 274(e)
(2) and (e)(9), as applicable, in cases
where the taxpayer includes an improper amount in compensation and wages,
or gross income, of the recipient. However, if a taxpayer includes less than the
proper amount in compensation and wages or gross income, the final regulations
provide that the taxpayer must apply the
dollar-for-dollar methodology that applies
in the case of a specified individual. Under that dollar-for-dollar methodology, the
taxpayer may deduct meal expenses to the
extent that the expenses do not exceed the
amount of the expenses that are treated
as compensation and wages, or gross income, as applicable.
The Treasury Department and the IRS
believe the rules provided in the final regulations avoid the unduly harsh result that
could arise by prohibiting application of
section 274(e)(2) or (e)(9) in cases where
the taxpayer includes some, but not all, of
the value of a food or beverage expense
in the recipient’s income. In addition, the
rules maintain consistency with the IRS’s
acquiescence in Sutherland Lumber,
which provides that the IRS will no longer
litigate application of section 274(e)(2) in
cases in which a taxpayer demonstrates
that it has “properly” included in compensation and wages the value of an employee vacation flight in accordance with
§1.61-21(g). See AOD-2002-02. The rules

Bulletin No. 2021–2

are also consistent with §1.274-10(a)(2)
(ii)(A), which applies the section 274(e)
(2) exception to entertainment air travel
and provides that a taxpayer must “properly” treat expenses as compensation and
wages to an employee and treat the proper
amount as compensation under §1.61-21.
For administrability, a commenter suggested that the rule apply to the amounts
included on the employee’s Form W-2 or
other recipient’s Form 1099-MISC instead
of amounts reported as compensation on
the service provider’s return. The language in the proposed regulations refers
to the treatment of the amount on the “taxpayer’s income tax return as originally
filed,” meaning the tax return of the employer, not the employee or service provider. However, to further clarify the rule,
§1.274-12(c)(2)(i)(A) of the final regulations no longer references the treatment of
the amount on the taxpayer’s income tax
return, but instead refers to the treatment
of the expense as compensation and wages, consistent with the language in §1.27410(a)(2)(ii)(A).
A commenter suggested the final regulations address the effect of reimbursements by employees, specified individuals, or other recipients of the food or
beverages on the amount excepted from
the limitations under section 274(k)(1)
and (n)(1) by section 274(e)(2) and (e)(9).
The commenter explained that §1.27410(a)(2)(ii)(C)(2) treats reimbursements
in the same manner as compensation and
wages for specified individuals, and a similar rule should be provided for reimbursements from non-specified individuals. The
commenter pointed out that without a similar rule, expenses for food or beverages
provided to specified individuals may be
accorded more favorable treatment than
expenses provided to non-specified individuals. The Treasury Department and the
IRS agree that in cases in which expenditures for food and beverages are reimbursed to the taxpayer, similar treatment
should be provided under section 274, regardless of whether the food or beverages
are provided to a specified or non-specified individual.
With regard to non-specified individuals, the final regulations provide that a
taxpayer may deduct its food or beverage expenses under the exception in section 274(e)(2)(A) or section 274(e)(9) if

303

the taxpayer includes the proper amount
in compensation and wages, or gross income, as applicable. Section 1.61-21(b)
(1) provides rules for the valuation of
fringe benefits and requires that an employee must include in gross income the
amount by which the fair market value of
the fringe benefit exceeds the sum of the
amount paid for the benefit by or on behalf
of the recipient and the amount, if any,
specifically excluded from gross income
under the Code. Thus, in the case of reimbursements by a recipient, the amount of
the reimbursement is taken into account in
determining the amount properly includible in the recipient’s income and does not
affect the taxpayer’s ability to use the exception in section 274(e)(2)(A) or section
274(e)(9).
With regard to improper inclusions in
compensation and wages or gross income,
the final regulations provide that the taxpayer must apply the dollar-for-dollar
methodology as described in §1.274-12(c)
(2)(i)(D). Under that rule, food and beverage expenses are deductible to the extent
that the expenses do not exceed the sum of
the amount of the expenses that are treated as compensation and wages or gross income, and any amount the recipient reimburses the taxpayer. This dollar-for-dollar
rule is the same methodology that applies
under section 274(e)(2)(B) for food or
beverages provided to specified individuals.
The final regulations also include a provision for specified individuals providing
that the exceptions of section 274(e)(2)
and (e)(9) generally apply only to the extent that the food or beverage expenses do
not exceed the amount of the food or beverage expenses treated as compensation
(under section 274(e)(2)) or as income
(under section 274(e)(9)) to the specified
individual. The final regulations provide,
however, that amounts reimbursed to the
taxpayer by the specified individual, will
reduce the amount subject to the limitations under section 274(k)(1) and (n)
(1). This rule conforms to the statutory
language in section 274(e)(2)(B) and the
regulatory language in §1.274-10. Thus,
the final regulations address the comment
asking for clarification of the effect of reimbursements by employees, specified individuals, and other recipients of the food
or beverages on the amount excepted from

January 11, 2021

the limitations under section 274(k)(1)
and (n)(1) by section 274(e)(2) and (e)(9).
The Treasury Department and the IRS
continue to believe that if the amount to
be included in compensation and wages
or gross income is zero, whether zero is a
proper or improper amount, the exceptions
in section 274(e)(2) and section 274(e)(9)
do not apply because no amount has been
included in compensation and wages or
gross income. For example, if the amount
to be included is zero because the value
of the food or beverages is excluded as a
fringe benefit under section 132, the exceptions in section 274(e)(2) and (e)(9)
do not apply. Similarly, the exceptions in
section 274(e)(2) and (e)(9) do not apply
if the amount to be included is zero solely
because the recipient has fully reimbursed
the taxpayer for the food or beverages. In
that case, however, the exception in section
274(e)(8) may apply if the food or beverages are sold to the recipient in a bona fide
transaction for an adequate and full consideration in money or money’s worth.
ii. Food or Beverage Expenses Provided
under Reimbursement Arrangements
Pursuant to section 274(e)(3), the final
regulations provide that in the case of expenses for food or beverages paid or incurred by one person in connection with
the performance of services for another
person (whether or not the other person
is an employer) under a reimbursement
or other expense allowance arrangement,
the limitations on deductions in section
274(k)(1) and (n)(1) apply either to the
person who makes the expenditure or to
the person who actually bears the expense,
but not to both. Section 274(e)(3)(B) provides that if the services are performed for
a person other than an employer, such as
by an independent contractor, the exception in section 274(e)(3) applies only if
the taxpayer, in this case, the independent
contractor, accounts, to the extent provided by section 274(d), to such person. The
final regulations therefore provide that the
deduction limitations in section 274(k)(1)
and (n)(1) apply to an independent contractor unless, under a reimbursement or
other expense allowance arrangement, the
contractor accounts to its client or customer with substantiation that satisfies the requirements of section 274(d).

January 11, 2021

iii. Recreational Expenses for Employees
Pursuant to section 274(e)(4), the final
regulations provide that any food or beverage expense paid or incurred by a taxpayer for a recreational, social, or similar
activity, primarily for the benefit of the
taxpayer’s employees, is not subject to
the deduction limitations in section 274(k)
(1) and (n)(1). However, activities that
discriminate in favor of highly compensated employees, officers, shareholders
or others who own a 10-percent or greater
interest in the business are not considered
paid or incurred primarily for the benefit
of employees.
Many of the comments received after
enactment of the TCJA requested confirmation that food or beverage expenses for
company holiday parties and picnics that
do not discriminate in favor of highly compensated employees are not subject to the
deduction limitations in section 274(k)(1)
and (n)(1) because the exception in section 274(e)(4) applies. These comments
also suggested that expenses for snacks
and beverages available to all employees
in a pantry, break room, or copy room are
not subject to the deduction limitations in
section 274(k)(1) and (n)(1) because the
exception in section 274(e)(4) applies.
In response to the questions and comments received, the proposed regulations
confirm the rules in the existing regulations at §1.274-2(f)(2)(v) that the exception in section 274(e)(4) applies to food
or beverage expenses for company holiday parties, annual picnics, or summer
outings that do not discriminate in favor
of highly compensated employees. However, an example in the proposed regulations demonstrates that the section 274(e)
(4) exception does not apply to free food
or beverages available to all employees in
a pantry, break room, or copy room because the mere provision or availability
of food or beverages is not a recreational,
social, or similar activity, despite the fact
that employees may incidentally socialize
while they are in the break room. The final
regulations adopt the proposed regulations
with respect to the application of section
274(e)(4) in this context.
In addition, the final regulations provide that the exception in section 274(e)
(4) does not apply to food or beverage expenses that are excludable from employ-

304

ees’ income under section 119 as meals
provided for the convenience of the employer. Because these food or beverages
are, by definition, furnished for the employer’s convenience, they cannot also be
primarily for the benefit of the employees,
even if some social activity occurs during
the provision of the food or beverages.
iv. Items Available to the Public
Pursuant to section 274(e)(7), the final
regulations provide that food or beverage
expenses of a taxpayer are not subject to
the deduction limitations in section 274(k)
(1) and (n)(1) to the extent the food or
beverages are made available to the general public. In addition, the final regulations
provide that this exception applies to expenses for food or beverages provided to
employees if similar food or beverages are
provided by the employer to, and are primarily consumed by, the general public.
For this purpose, “primarily consumed”
means greater than 50 percent of actual
or reasonably estimated consumption, and
“general public” includes, but is not limited to, customers, clients, and visitors. The
final regulations also provide that the general public does not include employees,
partners, 2-percent shareholders of S corporations (as defined in section 1372(b)),
or independent contractors of the taxpayer. Further, an exclusive list of guests also
is not considered the general public. See
Churchill Downs, Inc. v. Commissioner,
307 F.3d 423 (6th Cir. 2002).
Comments received in response to
Notice 2018-76 requested guidance as to
whether the exception in section 274(e)
(7) for food or beverages made available
by the taxpayer to the general public
applies in various situations. The Treasury Department and the IRS considered
these comments and included examples
in the proposed regulations to illustrate
that the exception in section 274(e)(7)
generally applies to the entire food or
beverage expense if the food or beverages are primarily consumed by the general
public. The final regulations retain these
examples.
v. Goods or Services Sold to Customers
Pursuant to section 274(e)(8), the final
regulations provide that any expense for

Bulletin No. 2021–2

food or beverages that are sold to customers in a bona fide transaction for an adequate and full consideration in money or
money’s worth is not subject to the deduction limitations in section 274(k)(1) and
(n)(1). The final regulations clarify that
money or money’s worth does not include
payment through services provided.
The Treasury Department and the IRS
are aware of concerns raised by commenters that it is a common business practice
for employers of restaurant and food
service workers to provide food or beverages at no cost or at a discount to their
employees. The Joint Committee on Taxation’s Bluebook on the TCJA explains
that amendments made by the TCJA to
limit the deduction for expenses of the
employer associated with providing food
or beverages to employees through an employer-operated eating facility that meets
the requirements of section 132(e)(2) do
not affect other exceptions to the 50-percent limitation on deductions for food or
beverage expenses. For example, a restaurant or catering business may continue to
deduct 100 percent of its costs for food
or beverage items, purchased in connection with preparing and providing meals
to its paying customers, which are also
consumed at the worksite by employees
who work in the employer’s restaurant
or catering business. Joint Committee on
Taxation, General Explanation of Public
Law 115-97 (JCS-1-18), at 186 n.940 and
at 188 n.956, December 2018. The final
regulations adopt this interpretation of the
exception in section 274(e)(8).
Finally, the final regulations provide
that for purposes of the section 274(e)(8)
exception to the deduction limitations in
section 274(k)(1) and (n)(1), the term “customer” includes anyone who is sold food or
beverages in a bona fide transaction for an
adequate and full consideration in money
or money’s worth. For example, employees
of the taxpayer are customers when they
purchase food or beverages from the taxpayer in a bona fide transaction for arm’s
length, fair market value prices.
Statement of Availability of IRS
Documents
Notices cited in this preamble are published in the Internal Revenue Bulletin (or
Cumulative Bulletin) and are available
from the Superintendent of Documents,

Bulletin No. 2021–2

U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the
IRS web site at http://www.irs.gov.
Applicability Date
These regulations apply to taxable years
that begin on or after October 9, 2020.
Special Analyses
These final regulations are not subject
to review under section 6(b) of Executive
Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the
Office of Management and Budget regarding review of tax regulations.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby
certified that this final rule will not have a
significant economic impact on a substantial number of small entities. Although
the rule may affect a substantial number
of small entities, the economic impact of
the regulations is not likely to be significant. Data are not readily available about
the number of taxpayers affected, but the
number is likely to be substantial for both
large and small entities because the rule
may affect entities that incur meal and entertainment expenses. The economic impact of these regulations is not likely to be
significant, however, because these final
regulations substantially incorporate prior
guidance and otherwise clarify the application of the TCJA changes to section 274
related to meals and entertainment. These
final regulations will assist taxpayers in
understanding the changes to section 274
and make it easier for taxpayers to comply with those changes. Accordingly, the
Secretary of the Treasury’s delegate certifies that the rule will not have a significant
economic impact on a substantial number
of small entities. Notwithstanding this
certification, the Treasury Department and
the IRS welcome comments on the impact
of these regulations on small entities.
Pursuant to section 7805(f), these final
regulations have been submitted to the
Chief Counsel for the Office of Advocacy of the Small Business Administration
for comment on their impact on small
business. No comments on the proposed
regulations were received from the Chief
Counsel for the Office of Advocacy of the
Small Business Administration.

305

Effect on Other Documents
The following publications are obsolete as of October 9, 2020.
Notice 2018-76 (2018-42 I.R.B. 599).
Drafting Information
The principal author of these final regulations is Patrick Clinton, Office of the
Associate Chief Counsel (Income Tax &
Accounting). Other personnel from the
Treasury Department and the IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and recordkeeping requirements
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 1 is amended as follows:
Part 1—INCOME TAX
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 1.274-11 also issued under 26
U.S.C. 274.
Section 1.274-12 also issued under 26
U.S.C. 274.
Par. 2. Section 1.274-11 is added to
read as follows:
§1.274-11 Disallowance of deductions
for certain entertainment, amusement, or
recreation expenditures paid or incurred
after December 31, 2017.
(a) In general. Except as provided in
this section, no deduction otherwise allowable under chapter 1 of the Internal
Revenue Code (Code) is allowed for any
expenditure with respect to an activity that
is of a type generally considered to be entertainment, or with respect to a facility
used in connection with an entertainment
activity. For this purpose, dues or fees to
any social, athletic, or sporting club or
organization are treated as items with respect to facilities and, thus, are not deductible. In addition, no deduction otherwise

January 11, 2021

allowable under chapter 1 of the Code is
allowed for amounts paid or incurred for
membership in any club organized for
business, pleasure, recreation, or other social purpose.
(b) Definitions—(1) Entertainment—
(i) In general. For section 274 purposes,
the term entertainment means any activity
which is of a type generally considered to
constitute entertainment, amusement, or
recreation, such as entertaining at bars,
theaters, country clubs, golf and athletic
clubs, sporting events, and on hunting,
fishing, vacation and similar trips, including such activity relating solely to the
taxpayer or the taxpayer’s family. These
activities are treated as entertainment under this section, subject to the objective
test, regardless of whether the expenditure
for the activity is related to or associated
with the active conduct of the taxpayer’s
trade or business. The term entertainment
may include an activity, the cost of which
otherwise is a business expense of the taxpayer, which satisfies the personal, living,
or family needs of any individual, such as
providing a hotel suite or an automobile
to a business customer or the customer’s
family. The term entertainment does not
include activities which, although satisfying personal, living, or family needs of an
individual, are clearly not regarded as constituting entertainment, such as the providing of a hotel room maintained by an
employer for lodging of employees while
in business travel status or an automobile
used in the active conduct of a trade or
business even though used for routine personal purposes such as commuting to and
from work. On the other hand, the providing of a hotel room or an automobile by an
employer to an employee who is on vacation would constitute entertainment of the
employee.
(ii) Food or beverages. Under this
section, the term entertainment does not
include food or beverages unless the food
or beverages are provided at or during
an entertainment activity. Food or beverages provided at or during an entertainment activity generally are treated as part
of the entertainment activity. However,
in the case of food or beverages provided at or during an entertainment activity,
the food or beverages are not considered
entertainment if the food or beverages
are purchased separately from the enter-

January 11, 2021

tainment, or the cost of the food or beverages is stated separately from the cost
of the entertainment on one or more bills,
invoices, or receipts. The amount charged
for food or beverages on a bill, invoice,
or receipt must reflect the venue’s usual
selling cost for those items if they were
to be purchased separately from the entertainment or must approximate the reasonable value of those items. If the food
or beverages are not purchased separately
from the entertainment, or the cost of the
food or beverages is not stated separately
from the cost of the entertainment on one
or more bills, invoices, or receipts, no allocation between entertainment and food
or beverage expenses may be made and,
except as further provided in this section
and section 274(e), the entire amount is a
nondeductible entertainment expenditure
under this section and section 274(a).
(iii) Objective test. An objective test
is used to determine whether an activity is of a type generally considered to
be entertainment. Thus, if an activity
is generally considered to be entertainment, it will be treated as entertainment
for purposes of this section and section
274(a) regardless of whether the expenditure can also be described otherwise,
and even though the expenditure relates
to the taxpayer alone. This objective test
precludes arguments that entertainment
means only entertainment of others or
that an expenditure for entertainment
should be characterized as an expenditure for advertising or public relations.
However, in applying this test the taxpayer’s trade or business is considered.
Thus, although attending a theatrical performance generally would be considered
entertainment, it would not be so considered in the case of a professional theater
critic attending in a professional capacity. Similarly, if a manufacturer of dresses
conducts a fashion show to introduce its
products to a group of store buyers, the
show generally would not be considered
entertainment. However, if an appliance
distributor conducts a fashion show, the
fashion show generally would be considered to be entertainment.
(2) Expenditure. The term expenditure
as used in this section includes amounts
paid or incurred for goods, services, facilities, and other items, including items such
as losses and depreciation.

306

(3) Expenditures for production of income. For purposes of this section, any
reference to trade or business includes an
activity described in section 212.
(c) Exceptions. Paragraph (a) of this
section does not apply to any expenditure
described in section 274(e)(1), (2), (3),
(4), (5), (6), (7), (8), or (9).
(d) Examples. The following examples
illustrate the application of paragraphs (a)
and (b) of this section. In each example,
assume that the taxpayer is engaged in a
trade or business for purposes of section
162 and that neither the taxpayer nor any
business associate is engaged in a trade or
business that relates to the entertainment
activity. Also assume that none of the exceptions under section 274(e) and paragraph (c) of this section apply.

(1) Example 1. Taxpayer A invites, B, a business
associate, to a baseball game to discuss a proposed
business deal. A purchases tickets for A and B to attend the game. The baseball game is entertainment as
defined in §1.274-11(b)(1) and thus, the cost of the
game tickets is an entertainment expenditure and is
not deductible by A.
(2) Example 2. The facts are the same as in paragraph (d)(1) of this section (Example 1), except that
A also buys hot dogs and drinks for A and B from
a concession stand. The cost of the hot dogs and
drinks, which are purchased separately from the
game tickets, is not an entertainment expenditure and
is not subject to the disallowance under §1.274-11(a)
and section 274(a)(1). Therefore, A may deduct 50
percent of the expenses associated with the hot dogs
and drinks purchased at the game if the expenses
meet the requirements of section 162 and §1.274-12.
(3) Example 3. Taxpayer C invites D, a business
associate, to a basketball game. C purchases tickets
for C and D to attend the game in a suite, where they
have access to food and beverages. The cost of the
basketball game tickets, as stated on the invoice, includes the food or beverages. The basketball game
is entertainment as defined in §1.274-11(b)(1), and,
thus, the cost of the game tickets is an entertainment
expenditure and is not deductible by C. The cost of
the food and beverages, which are not purchased
separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and
beverages is an entertainment expenditure that is
subject to disallowance under section 274(a)(1) and
paragraph (a) of this section, and C may not deduct
the cost of the tickets or the food and beverages associated with the basketball game.
(4) Example 4. The facts are the same as in
paragraph (d)(3) of this section (Example 3), except
that the invoice for the basketball game tickets separately states the cost of the food and beverages and
reflects the venue’s usual selling price if purchased
separately. As in paragraph (d)(3) of this section
(Example 3), the basketball game is entertainment
as defined in §1.274-11(b)(1), and, thus, the cost of
the game tickets, other than the cost of the food and
beverages, is an entertainment expenditure and is not
deductible by C. However, the cost of the food and

Bulletin No. 2021–2

beverages, which is stated separately on the invoice
for the game tickets and reflects the venue’s usual
selling price of the food and beverages if purchased
separately, is not an entertainment expenditure and is
not subject to the disallowance under section 274(a)
(1) and paragraph (a) of this section. Therefore, C
may deduct 50 percent of the expenses associated
with the food and beverages provided at the game
if the expenses meet the requirements of section 162
and §1.274-12.

(e) Applicability date. This section applies for taxable years that begin on or after October 9, 2020.
Par. 3. Section 1.274-12 is added to
read as follows:
§1.274-12 Limitation on deductions for
certain food or beverage expenses paid
or incurred after December 31, 2017.

(a) Food or beverage expenses—(1) In
general. Except as provided in this section, no deduction is allowed for the expense of any food or beverages provided
by the taxpayer (or an employee of the
taxpayer) unless—
(i) The expense is not lavish or extravagant under the circumstances;
(ii) The taxpayer, or an employee of
the taxpayer, is present at the furnishing
of such food or beverages; and
(iii) The food or beverages are provided to the taxpayer or a business associate.
(2) Only 50 percent of food or beverage
expenses allowed as deduction. Except as
provided in this section, the amount allowable as a deduction for any food or
beverage expense described in paragraph
(a)(1) of this section may not exceed 50
percent of the amount of the expense that
otherwise would be allowable.
(3) Examples. The following examples
illustrate the application of paragraph (a)
(1) and (2) of this section. In each example,
assume that the food or beverage expenses are ordinary and necessary expenses
under section 162(a) that are paid or incurred during the taxable year in carrying
on a trade or business and are not lavish
or extravagant under the circumstances.
Also assume that none of the exceptions
in paragraph (c) of this section apply.
(i) Example 1. Taxpayer A takes client B out to
lunch. Under section 274(k) and (n) and paragraph
(a) of this section, A may deduct 50 percent of the
food or beverage expenses.
(ii) Example 2. Taxpayer C takes employee D out
to lunch. Under section 274(k) and (n) and paragraph
(a) of this section, C may deduct 50 percent of the
food or beverage expenses.

Bulletin No. 2021–2

(iii) Example 3. Taxpayer E holds a business
meeting at a hotel during which food and beverages
are provided to attendees. Expenses for the business
meeting, other than the cost of food and beverages,
are not subject to the deduction limitations in section
274 and are deductible if they meet the requirements
for deduction under section 162. Under section
274(k) and (n) and paragraph (a) of this section, E
may deduct 50 percent of the food and beverage expenses.
(iv) Example 4. The facts are the same as in paragraph (a)(3)(iii) of this section (Example 3), except
that all the attendees of the meeting are employees of
E. Expenses for the business meeting, other than the
cost of food and beverages, are not subject to the deduction limitations in section 274 and are deductible
if they meet the requirements for deduction under
section 162. Under section 274(k) and (n) and paragraph (a) of this section, E may deduct 50 percent
of the food and beverage expenses. The exception in
section 274(e)(5) does not apply to food and beverage expenses under section 274(k) and (n).

(4) Special rules for travel meals. (i)
In general. Food or beverage expenses
paid or incurred while traveling away
from home in pursuit of a trade or business generally are subject to the deduction limitations in section 274(k) and
(n) and paragraph (a)(1) and (2) of this
section, as well as the substantiation requirements in section 274(d). In addition,
travel expenses generally are subject to
the limitations in section 274(m)(1), (2),
and (3).
(ii) Substantiation. Except as provided
in this section, no deduction is allowed for
the expense of any food or beverages paid
or incurred while traveling away from
home in pursuit of a trade or business unless the taxpayer meets the substantiation
requirements in section 274(d).
(iii) Travel meal expenses of spouse,
dependent or others. No deduction is allowed under chapter 1 of the Internal Revenue Code (Code), except under section
217 for certain members of the Armed
Forces of the United States, for the expense of any food or beverages paid or
incurred with respect to a spouse, dependent, or other individual accompanying
the taxpayer, or an officer or employee of
the taxpayer, on business travel, unless—
(A) The spouse, dependent, or other individual is an employee of the taxpayer;
(B) The travel of the spouse, dependent, or other individual is for a bona fide
business purpose of the taxpayer; and
(C) The expenses would otherwise be
deductible by the spouse, dependent or
other individual.

307

(D) Example. The following example
illustrates the application of paragraph (a)
(4)(iii) of this section:

(1 ) Example. Taxpayer F, a sole proprietor, and
Taxpayer F’s spouse travel from New York to Boston
to attend a series of business meetings related to F’s
trade or business. F’s spouse is not an employee of
F, does not travel to Boston for a bona fide business
purpose of F, and the expenses would not otherwise
be deductible. While in Boston, F and F’s spouse go
out to dinner. Under section 274(m)(3) and paragraph (a)(4)(iii) of this section, the expenses associated with the food and beverages consumed by F’s
spouse are not deductible. Therefore, the cost of F’s
spouse’s dinner is not deductible. F may deduct 50
percent of the expense associated with the food and
beverages F consumed while on business travel if F
meets the requirements in sections 162 and 274, including section 274(k) and (d).
(2) [Reserved]

(b) Definitions. Except as otherwise
provided in this section, the following
definitions apply for purposes of section
274(k) and (n), §1.274-11(b)(1)(ii) and
(d), and this section:
(1) Food or beverages. Food or beverages means all food and beverage items,
regardless of whether characterized as
meals, snacks, or other types of food and
beverages, and regardless of whether the
food and beverages are treated as de minimis fringes under section 132(e).
(2) Food or beverage expenses. Food
or beverage expenses mean the full cost
of food or beverages, including any delivery fees, tips, and sales tax. In the case of
employer-provided meals furnished at an
eating facility on the employer’s business
premises, food or beverage expenses do
not include expenses for the operation of
the eating facility such as salaries of employees preparing and serving meals and
other overhead costs.
(3) Business associate. Business associate means a person with whom the taxpayer could reasonably expect to engage
or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee,
agent, partner, or professional adviser,
whether established or prospective.
(4) Independent contractor. For purposes of the reimbursement or other expense allowance arrangements described
in paragraph (c)(2)(ii) of this section, independent contractor means a person who
is not an employee of the payor.
(5) Client or customer. For purposes
of the reimbursement or other expense
allowance arrangements described in

January 11, 2021

paragraph (c)(2)(ii) of this section, client
or customer of an independent contractor means a person who receives services
from an independent contractor and enters
into a reimbursement or other expense
allowance arrangement with the independent contractor.
(6) Payor. For purposes of the reimbursement or other expense allowance arrangements described in paragraph (c)(2)
(ii) of this section, payor means a person
that enters into a reimbursement or other
expense allowance arrangement with an
employee and may include an employer,
its agent, or a third party.
(7) Reimbursement or other expense
allowance arrangement. For purposes of
the reimbursement or other expense allowance arrangements described in paragraph
(c)(2)(ii) of this section, reimbursement
or other expense allowance arrangement
means—
(i) For purposes of paragraph (c)(2)(ii)
(B) of this section, an arrangement under
which an employee receives an advance,
allowance, or reimbursement from a payor
for expenses the employee pays or incurs;
and
(ii) For purposes of paragraph (c)(2)(ii)
(C) of this section, an arrangement under
which an independent contractor receives
an advance, allowance, or reimbursement
from a client or customer for expenses the
independent contractor pays or incurs if
either—
(A) A written agreement between the
parties expressly states that the client or
customer will reimburse the independent
contractor for expenses that are subject to
the limitations on deductions described in
paragraph (a) of this section; or
(B) A written agreement between the
parties expressly identifies the party subject to the limitations.
(8) Primarily consumed. For purposes
of paragraph (c)(2)(iv) of this section, primarily consumed means greater than 50
percent of actual or reasonably estimated
consumption.
(9) General public. For purposes of
paragraph (c)(2)(iv) of this section, the
general public includes, but is not limited to, customers, clients, and visitors.
The general public does not include employees, partners, 2-percent shareholders
of S corporations (as defined in section
1372(b)), or independent contractors of

January 11, 2021

the taxpayer. Also, the guests on an exclusive list of guests are not the general
public.
(c) Exceptions—(1) In general. The
limitations on the deduction of food or
beverage expenses in paragraph (a) of this
section do not apply to any expense described in paragraph (c)(2) of this section.
These expenses are deductible to the extent allowable under chapter 1 of the Code
(chapter 1).
(2) Exceptions—(i) Expenses treated
as compensation—(A) Expenses includible in income of persons who are employees and are not specified individuals.
In accordance with section 274(e)(2)(A),
and except as provided in paragraph (c)(2)
(i)(D) of this section, an expense paid or
incurred by a taxpayer for food or beverages, if an employee who is not a specified
individual is the recipient of the food or
beverages, is not subject to the deduction
limitations in paragraph (a) of this section
to the extent that the taxpayer—
(1) Properly treats the expense relating to the recipient of food or beverages
as compensation to an employee under
chapter 1 and as wages to the employee
for purposes of chapter 24 of the Code
(chapter 24); and
(2) Treats the proper amount as compensation to the employee under §1.61-21.
(B) Expenses includible in income of
persons who are not employees and are
not specified individuals. In accordance
with section 274(e)(9), and except as provided in paragraph (c)(2)(i)(D) of this section, an expense paid or incurred by a taxpayer for food or beverages is not subject
to the deduction limitations in paragraph
(a) of this section to the extent that the expenses are properly included in income as
compensation for services rendered by, or
as a prize or award under section 74 to, a
recipient of the expense who is not an employee of the taxpayer and is not a specified individual. The preceding sentence
does not apply to any amount paid or
incurred by the taxpayer if the amount is
required to be included, or would be so required except that the amount is less than
$600, in any information return filed by
such taxpayer under part III of subchapter
A of chapter 61 of the Code and is not so
included.
(C) Specified Individuals. In accordance with section 274(e)(2)(B), in the

308

case of a specified individual (as defined
in section 274(e)(2)(B)(ii)), the deduction
limitations in paragraph (a) of this section do not apply to an expense for food
or beverages of the specified individual to
the extent that the amount of the expense
does not exceed the sum of—
(1) The amount treated as compensation to the specified individual under
chapter 1 and as wages to the specified
individual for purposes of chapter 24 (if
the specified individual is an employee) or
as compensation for services rendered by,
or as a prize or award under section 74 to,
a recipient of the expense (if the specified
individual is not an employee); and
(2) Any amount the specified individual reimburses the taxpayer.
(D) Expenses for which an amount is
excluded from income or is less than the
proper amount. Notwithstanding paragraphs (c)(2)(i)(A) and (B) of this section,
in the case of an expense paid or incurred
by a taxpayer for food or beverages for
which an amount is wholly or partially
excluded from a recipients’ income under
any section of subtitle A of the Code (other than because the amount is reimbursed
by the recipient), or for which an amount
included in compensation and wages to an
employee (or as income to a nonemployee) is less than the amount required to be
included under §1.61-21, the deduction
limitations in paragraph (a) of this section
do not apply to the extent that the amount
of the expense does not exceed the sum
of—
(1) The amount treated as compensation to the employee under chapter 1 (or
as income to a nonemployee) and as wages to the employee for purposes of chapter
24; and
(2) Any amount the recipient reimburses the taxpayer.
(E) Examples. The following examples
illustrate the application of paragraph (c)
(2)(i) of this section. In each example, assume that the food or beverage expenses
are ordinary and necessary expenses under section 162(a) that are paid or incurred
during the taxable year in carrying on a
trade or business.
(1) Example 1. Employer G provides food and
beverages to its non-specified individual employees
without charge at a company cafeteria on its premises. The food and beverages do not meet the definition
of a de minimis fringe under section 132(e). Thus, G
treats the full fair market value of the food and bever-

Bulletin No. 2021–2

age expenses as compensation and wages, and properly determines this amount under §1.61-21. Under
section 274(e)(2) and paragraph (c)(2)(i)(A) of this
section, the expenses associated with the food and
beverages provided to the employees are not subject
to the 50 percent deduction limitation in paragraph
(a) of this section. Thus, G may deduct 100 percent
of the food and beverage expenses.
(2) Example 2. The facts are the same as in (c)(2)
(i)(E)(1) of this section (Example 1), except that each
employee pays $8 per day for the food and beverages. The fair market value of the food and beverages
is $10 per day, per employee. G incurs $9 per day,
per employee for the food and beverages. G treats
the food and beverage expenses as compensation
and wages, and properly determines the amount of
the inclusion under §1.61-21 to be $2 per day, per
employee ($10 fair market value - $8 reimbursed by
the employee = $2). Therefore, under paragraph (c)
(2)(i)(A) of this section, G may deduct 100 percent
of the food and beverage expenses, or $9 per day,
per employee.
(3) Example 3. Employer H provides meals to its
employees without charge. The meals are properly
excluded from the employees’ income under section
119 as meals provided for the convenience of the
employer. Under §1.61-21(b)(1), an employee must
include in gross income the amount by which the
fair market value of a fringe benefit exceeds the sum
of the amount, if any, paid for the benefit by or on
behalf of the recipient, and the amount, if any, specifically excluded from gross income by some other
section of subtitle A of the Code. Because the entire
value of the employees’ meals is excluded from the
employees’ income under section 119, the fair market value of the fringe benefit does not exceed the
amount excluded from gross income under subtitle
A of the Code, so there is nothing to be included in
the employees’ income under §1.61-21. Thus, the
exception in section 274(e)(2) and paragraph (c)(2)
(i) of this section does not apply and, assuming no
other exceptions provided under section 274(n)(2)
and paragraph (c)(2) of this section apply, H may
deduct only 50 percent of the expenses for the food
and beverages provided to employees. In addition,
the limitations in section 274(k)(1) and paragraph (a)
(1) of this section apply because none of the exceptions in section 274(k)(2) and paragraph (c)(2) of this
section apply.

(ii) Reimbursed food or beverage expenses—(A) In general. In accordance
with section 274(e)(3), in the case of expenses for food or beverages paid or incurred by one person in connection with
the performance of services for another
person, whether or not the other person
is an employer, under a reimbursement or
other expense allowance arrangement, the
deduction limitations in paragraph (a) of
this section apply either to the person who
makes the expenditure or to the person
who actually bears the expense, but not to
both. If an expense of a type described in
paragraph (c)(2)(ii) of this section properly constitutes a dividend paid to a share-

Bulletin No. 2021–2

holder, unreasonable compensation paid
to an employee, a personal expense, or
other nondeductible expense, nothing in
this exception prevents disallowance of
the deduction to the taxpayer under other
provisions of the Code.
(B) Reimbursement arrangements involving employees. In the case of expenses
paid or incurred by an employee for food
or beverages in performing services as an
employee under a reimbursement or other expense allowance arrangement with
a payor, the limitations on deductions in
paragraph (a) of this section apply—
(1) To the employee to the extent the
employer treats the reimbursement or other payment of the expense on the employer’s income tax return as originally filed
as compensation paid to the employee and
as wages to the employee for purposes of
withholding under chapter 24 relating to
collection of income tax at source on wages; or
(2) To the payor to the extent the reimbursement or other payment of the expense is not treated as compensation and
wages paid to the employee in the manner
provided in paragraph (c)(2)(ii)(B)(1) of
this section. However, see paragraph (c)
(2)(ii)(C) of this section if the payor receives a payment from a third party that
may be treated as a reimbursement arrangement under that paragraph.
(C) Reimbursement arrangements involving persons that are not employees. In
the case of expenses for food or beverages
paid or incurred by an independent contractor in connection with the performance
of services for a client or customer under
a reimbursement or other expense allowance arrangement with the independent
contractor, the limitations on deductions
in paragraph (a) of this section apply to
the party expressly identified in an agreement between the parties as subject to the
limitations. If an agreement between the
parties does not expressly identify the
party subject to the limitations, then the
deduction limitations in paragraph (a) of
this section apply—
(1) To the independent contractor
(which may be a payor) to the extent the
independent contractor does not account
to the client or customer within the meaning of section 274(d); or
(2) To the client or customer if the
independent contractor accounts to the

309

client or customer within the meaning of
section 274(d).
(D) Section 274(d) substantiation. If
the reimbursement or other expense allowance arrangement involves persons
who are not employees and the agreement
between the parties does not expressly
identify the party subject to the limitations
on deductions in paragraph (a) of this section, the limitations on deductions in paragraph (a) of this section apply to the independent contractor unless the independent
contractor accounts to the client or customer with substantiation that satisfies the
requirements of section 274(d).
(E) Examples. The following examples
illustrate the application of paragraph (c)
(2)(ii) of this section.

(1) Example 1. (i) Employee I performs services
under an arrangement in which J, an employee leasing company, pays I a per diem allowance of $10x
for each day that I performs services for J’s client,
K, while traveling away from home. The per diem
allowance is a reimbursement of travel expenses for
food or beverages that I pays in performing services
as an employee. J enters into a written agreement
with K under which K agrees to reimburse J for any
substantiated reimbursements for travel expenses,
including meal expenses, that J pays to I. The agreement does not expressly identify the party that is
subject to the limitations on deductions in paragraph
(a) of this section. I performs services for K while
traveling away from home for 10 days and provides J
with substantiation that satisfies the requirements of
section 274(d) of $100x of meal expenses incurred
by I while traveling away from home. J pays I $100x
to reimburse those expenses pursuant to their arrangement. J delivers a copy of I’s substantiation to
K. K pays J $300x, which includes $200x compensation for services and $100x as reimbursement of
J’s payment of I’s travel expenses for meals. Neither
J nor K treats the $100x paid to I as compensation
or wages.
(ii) Under paragraph (b)(7)(i) of this section,
I and J have established a reimbursement or other
expense allowance arrangement for purposes of
paragraph (c)(2)(ii)(B) of this section. Because the
reimbursement payment is not treated as compensation and wages paid to I, under section 274(e)(3)(A)
and paragraph (c)(2)(ii)(B)(1) of this section, I is not
subject to the limitations on deductions in paragraph
(a) of this section. Instead, under paragraph (c)(2)(ii)
(B)(2) of this section, J, the payor, is subject to limitations on deductions in paragraph (a) of this section
unless J can meet the requirements of section 274(e)
(3)(B) and paragraph (c)(2)(ii)(C) of this section.
(iii) Because the agreement between J and K
expressly states that K will reimburse J for substantiated reimbursements for travel expenses that J
pays to I, under paragraph (b)(7)(ii)(A) of this section, J and K have established a reimbursement or
other expense allowance arrangement for purposes
of paragraph (c)(2)(ii)(C) of this section. J accounts
to K for K’s reimbursement in the manner required
by section 274(d) by delivering to K a copy of the

January 11, 2021

substantiation J received from I. Therefore, under
section 274(e)(3)(B) and paragraph (c)(2)(ii)(C)(2)
of this section, K and not J is subject to the deduction
limitations in paragraph (a) of this section.
(2) Example 2. (i) The facts are the same as in
paragraph (c)(2)(ii)(E)(1) of this section (Example 1)
except that, under the arrangements between I and J
and between J and K, I provides the substantiation of
the expenses directly to K, and K pays the per diem
directly to I.
(ii) Under paragraph (b)(7)(i) of this section, I
and K have established a reimbursement or other expense allowance arrangement for purposes of paragraph (c)(2)(ii)(C) of this section. Because I substantiates directly to K and the reimbursement payment
was not treated as compensation and wages paid to I,
under section 274(e)(3)(A) and paragraph (c)(2)(ii)
(C)(1) of this section, I is not subject to the limitations on deductions in paragraph (a) of this section.
Under paragraph (c)(2)(ii)(C)(2) of this section, K,
the payor, is subject to the limitations on deductions
in paragraph (a) of this section.
(3) Example 3. (i) The facts are the same as in
paragraph (c)(2)(ii)(E)(1) of this section (Example 1), except that the written agreement between J
and K expressly provides that the limitations of this
section will apply to K.
(ii) Under paragraph (b)(7)(ii)(B) of this section, J and K have established a reimbursement or
other expense allowance arrangement for purposes
of paragraph (c)(2)(ii)(C) of this section. Because
the agreement provides that the 274 deduction limitations apply to K, under section 274(e)(3)(B) and
paragraph (c)(2)(ii)(C) of this section, K and not J is
subject to the limitations on deductions in paragraph
(a) of this section.
(4) Example 4. (i) The facts are the same as in (c)
(2)(ii)(E)(1) of this section (Example 1), except that
the agreement between J and K does not provide that
K will reimburse J for travel expenses.
(ii) The arrangement between J and K is not a
reimbursement or other expense allowance arrangement within the meaning of section 274(e)(3)(B) and
paragraph (b)(7)(ii) of this section. Therefore, even
though J accounts to K for the expenses, J is subject
to the limitations on deductions in paragraph (a) of
this section.

(iii) Recreational expenses for employees—(A) In general. In accordance with
section 274(e)(4), any food or beverage
expense paid or incurred by a taxpayer for
a recreational, social, or similar activity,
primarily for the benefit of a taxpayer’s
employees (other than employees who
are highly compensated employees (within the meaning of section 414(q))) is not
subject to the deduction limitations in
paragraph (a) of this section. For purposes
of this paragraph (c)(2)(iii), an employee
owning less than a 10-percent interest in
the taxpayer’s trade or business is not considered a shareholder or other owner, and
for such purposes an employee is treated
as owning any interest owned by a member of the employee’s family (within the

January 11, 2021

meaning of section 267(c)(4)). Any expense for food or beverages that is made
under circumstances which discriminate
in favor of highly compensated employees is not considered to be made primarily for the benefit of employees generally.
An expense for food or beverages is not to
be considered outside of the exception of
this paragraph (c)(2)(iii) merely because,
due to the large number of employees involved, the provision of food or beverages
is intended to benefit only a limited number of employees at one time, provided the
provision of food or beverages does not
discriminate in favor of highly compensated employees. This exception applies
to expenses paid or incurred for events
such as holiday parties, annual picnics, or
summer outings. This exception does not
apply to expenses for meals the value of
which is excluded from employees’ income under section 119 because the meals
are provided for the convenience of the
employer and are therefore not primarily
for the benefit of the taxpayer’s employees.
(B) Examples. The following examples
illustrate the application of this paragraph
(c)(2)(iii). In each example, assume that
the food or beverage expenses are ordinary and necessary expenses under section 162(a) that are paid or incurred during
the taxable year in carrying on a trade or
business.

(1) Example 1. Employer L invites all employees
to a holiday party in a hotel ballroom that includes a
buffet dinner and an open bar. Under section 274(e)
(4), this paragraph (c)(2)(iii), and §1.274-11(c), the
cost of the party, including food and beverage expenses, is not subject to the deduction limitations
in paragraph (a) of this section because the holiday
party is a recreational, social, or similar activity primarily for the benefit of non-highly compensated
employees. Thus, L may deduct 100 percent of the
cost of the party.
(2) Example 2. The facts are the same as in paragraph (c)(2)(iii)(B)(1) of this section (Example 1),
except that Employer L invites only highly-compensated employees to the holiday party, and the invoice
provided by the hotel lists the costs for food and beverages separately from the cost of the rental of the
ballroom. The costs reflect the venue’s usual selling
price for food or beverages. The exception in this
paragraph (c)(2)(iii) does not apply to the rental of
the ballroom or the food and beverage expenses because L invited only highly-compensated employees
to the holiday party. However, under §1.274-11(b)
(1)(ii), the food and beverage expenses are not treated as entertainment. Therefore, L is not subject to
the full disallowance for its separately stated food
and beverage expense under section 274(a)(1) and
§1.274-11(a). Unless another exception in section

310

274(n)(2) and paragraph (c)(2) of this section applies, L may deduct only 50 percent of the food and
beverage costs under paragraph (a)(2) of this section.
In addition, the limitations in section 274(k)(1) and
paragraph (a)(1) of this section apply because none
of the exceptions in section 274(k)(2) and paragraph
(c)(2) of this section apply.
(3) Example 3. Employer M provides free coffee,
soda, bottled water, chips, donuts, and other snacks
in a break room available to all employees. A break
room is not a recreational, social, or similar activity
primarily for the benefit of the employees, even if
some socializing related to the food and beverages provided occurs. Thus, the exception in section
274(e)(4) and this paragraph (c)(2)(iii) does not apply and unless another exception in section 274(n)
(2) and paragraph (c)(2) of this section applies, M
may deduct only 50 percent of the expenses for food
and beverages provided in the break room under
paragraph (a)(2) of this section. In addition, the limitations in section 274(k)(1) and paragraph (a)(1) of
this section apply because none of the exceptions in
section 274(k)(2) and paragraph (c)(2) of this section
apply.
(4) Example 4. Employer N has a written policy
that employees in a certain medical services-related position must be available for emergency calls
due to the nature of the position that requires frequent emergency responses. Because these emergencies can and do occur during meal periods, N
furnishes food and beverages to employees in this
position without charge in a cafeteria on N’s premises. N excludes food and beverage expenses from
the employees’ income as meals provided for the
convenience of the employer excludable under
section 119. Because these food and beverages
are furnished for the employer’s convenience, and
therefore are not primarily for the benefit of the
employees, the exception in section 274(e)(4) and
this paragraph (c)(2)(iii) does not apply, even if
some socializing related to the food and beverages
provided occurs. Further, the exception in section
274(e)(2) and paragraph (c)(2)(i) of this section
does not apply. Thus, unless another exception in
section 274(n)(2) and paragraph (c)(2) of this section applies, N may deduct only 50 percent of the
expenses for food and beverages provided to employees in the cafeteria under paragraph (a)(2) of
this section. In addition, the limitations in section
274(k)(1) and paragraph (a)(1) of this section apply
because none of the exceptions in section 274(k)(2)
and paragraph (c)(2) of this section apply.
(5) Example 5. Employer O invites an employee and a client to dinner at a restaurant. Because it
is the birthday of the employee, O orders a special
dessert in celebration. Because the meal is a business
meal, and therefore not primarily for the benefit of
the employee, the exception in section 274(e)(4) and
this paragraph (c)(2)(iii) does not apply, even though
an employee social activity in the form of a birthday
celebration occurred during the meal. Thus, unless
another exception in section 274(n)(2) and paragraph
(c)(2) of this section applies, O may deduct only 50
percent of the meal expense. In addition, the limitations in section 274(k)(1) and paragraph (a)(1) of
this section apply because none of the exceptions in
section 274(k)(2) and paragraph (c)(2) of this section
apply.

Bulletin No. 2021–2

(iv) Items available to the public—(A)
In general. In accordance with section
274(e)(7), any expense paid or incurred by
a taxpayer for food or beverages to the extent the food or beverages are made available to the general public is not subject to
the deduction limitations in paragraph (a)
of this section. If a taxpayer provides food
or beverages to employees, this exception
applies to the entire amount of expenses
for those food or beverages if the same
type of food or beverages is provided to,
and are primarily consumed by, the general public.
(B) Examples. The following examples
illustrate the application of this paragraph
(c)(2)(iv). In each example, assume that
the food and beverage expenses are ordinary and necessary expenses under section 162(a) that are paid or incurred during
the taxable year in carrying on a trade or
business.

(1) Example 1. Employer P is a real estate agent
and provides refreshments at an open house for a
home available for sale to the public. The refreshments are consumed by P’s employees, potential
buyers of the property, and other real estate agents.
Under section 274(e)(7) and this paragraph (c)(2)
(iv), the expenses associated with the refreshments
are not subject to the deduction limitations in paragraph (a) of this section if P determines that over 50
percent of the food and beverages are actually or
reasonably estimated to be consumed by potential
buyers and other real estate agents. If more than 50
percent of the food and beverages are not actually or
reasonably estimated to be consumed by the general public, only the costs attributable to the food and
beverages provided to the general public are excepted under section 274(e)(7) and this paragraph (c)(2)
(iv). In addition, the limitations in section 274(k)(1)
and paragraph (a)(1) of this section apply to the expenses associated with the refreshments that are not
excepted under section 274(e)(7) and this paragraph
(c)(2)(iv).
(2) Example 2. Employer Q is an automobile service center and provides refreshments in its waiting
area. The refreshments are consumed by Q’s employees and customers, and Q reasonably estimates
that more than 50 percent of the refreshments are
consumed by customers. Under section 274(e)(7)
and this paragraph (c)(2)(iv), the expenses associated
with the refreshments are not subject to the deduction limitations provided for in paragraph (a) of this
section because the food and beverages are primarily
consumed by customers. Thus, Q may deduct 100
percent of the food and beverage expenses.
(3) Example 3. Employer R operates a summer
camp open to the general public for children and provides breakfast and lunch, as part of the fee to attend
camp, both to camp counselors, who are employees,
and to camp attendees, who are customers. There are
20 camp counselors and 100 camp attendees. The
same type of meal is available to each counselor and
attendee, and attendees consume more than 50 per-

Bulletin No. 2021–2

cent of the food and beverages. Under section 274(e)
(7) and this paragraph (c)(2)(iv), the expenses associated with the food and beverages are not subject
to the deduction limitations in paragraph (a) of this
section, because over 50 percent of the food and beverages are consumed by camp attendees and the food
and beverages are therefore primarily consumed by
the general public. Thus, R may deduct 100 percent
of the food and beverage expenses.
(4) Example 4. Employer S provides food and
beverages to its employees without charge at a company cafeteria on its premises. Occasionally, customers or other visitors also eat without charge in the
cafeteria. The occasional consumption of food and
beverages at the company cafeteria by customers and
visitors is less than 50 percent of the total amount
of food and beverages consumed at the cafeteria.
There

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Afe316ad3baba7aee. Public record. Not legal advice.