The IRS has issued proposed regulations (REG-100814-19) addressing changes made to IRC Section 274 by the Tax Cuts and Jobs Act of 2017 (TCJA), specifically: (1) the elimination of the deduction for expenditures related to entertainment, amusement, and recreational activities and (2) the limitation on the deduction for food and beverage expenses.

Under the proposed regulations, 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.

In addition, taxpayers can deduct 50% of business meal expenses, as long as (1) they are not "lavish or extravagant under the circumstances," (2) the taxpayer, or an employee of the taxpayer, is present at the meal, and (3) the cost of the meal is separately stated.

While the TCJA repealed the heightened substantiation requirements for entertainment expenditures, traveling expenses (including meals and lodging while away from home) remain subject to the IRC Section 274(d) substantiation requirements.

The proposed regulations clarify that the exception under IRC Section 274(e)(4) (recreation primarily for the benefit of employees) does not apply to free food or beverages provided in a break room because "the mere provision or availability of food or beverages is not a recreational, social, or similar activity."

Comments on the proposed regulations should be submitted to the IRS by April 11; a public hearing is scheduled for April 7, 2020.