Meal portion of per diem allowance can be treated as attributed to a restaurant

By Paul Bonner

The 100% deduction allowable as a business expense in 2021 and 2022 for food or beverages provided by a restaurant applies to the meal portion of a per diem rate or allowance, the IRS clarified Tuesday in Notice 2021-63.

Under Sec. 274(n)(1) and Regs. Sec. 1.274-12, a deduction of any expense for food or beverages generally is limited to 50% of the amount otherwise deductible (i.e., as an ordinary and necessary business expense that is not lavish or extravagant under the circumstances). However, the Consolidated Appropriations Act, 2021, P.L. 116-260, added Sec. 274(n)(2)(D), providing that the full cost of such an expense is deductible if incurred after Dec. 31, 2020, and before Jan. 1, 2023, for food or beverages "provided by a restaurant."

Notice 2021-25 provided guidance on the definition of "provided by a restaurant" but did not address how the full deduction might be reflected in an allowable method of treating a specific amount as paid or incurred for meals while traveling away from home, in lieu of substantiating the actual cost under Regs. Sec. 1.274-5(j)(1), including the per diem method under Rev. Proc. 2019-48. Rev. Proc. 2019-48 specifies that such an amount is subject to the appropriate limitation under Sec. 274(n) concerning deductibility of food or beverage expenses.

Notice 2021-63 therefore provides a special rule: Solely for purposes of Sec. 274(n)(2)(D), a taxpayer that properly applies the rules of Rev. Proc. 2019-48 may treat the meal portion of a per diem rate or allowance paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, as being attributable to food or beverages provided by a restaurant.

The notice is effective for expenses incurred by an employer, self-employed individual, or employees described in Secs. 62(a)(2)(B) through (E) after Dec. 31, 2020, and before Jan. 1, 2023.

Paul Bonner ( is a JofA senior editor.

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