The Tax Court Likes Hockey

Usually, the income tax deduction for meals and entertainment is equal to half the amounts spent for meals and entertainment.  There are some exceptions, one of which is where the meals are a de minimis fringe benefit.  Tax Court Senior Judge Robert Ruwe decided that the away-game pre-game meals of the NHL’s Boston Bruins were de minimis fringe benefits.

Jeremy Jacobs, the owner of the Bruins, and his uxor petitioned the Tax Court to overturn the IRS’ determination of tax deficiencies for 2009 and 2010 in the amounts $45,205 and $39,823, respectively.  The deficiencies were caused by the IRS disallowing as deductions 50% of the cost of away-game pre-game meals for “traveling hockey employees.”   The attorneys for Mr. Jacobs argued that the de minimis fringe benefit rule under Internal Revenue Code Sections 274(n) and 132(e) allows the taxpayer to deduct 100% of the meals.  In order to claim the 100% deduction under that rule, the meals have to run a gauntlet of six tests.

Judge Ruwe ticked through facts as they applied to each of the six tests and found that the away-game pre-game meals passed all of the tests for 100% deduction.  One test that seemed rather difficult for the Bruins to pass on the road is the requirement that the eating facility where the meals were served had to be owned or leased by the Employer.  The Bruins’ contracts with the hotels were not called leases and did not look like leases that I have signed.  However, they did allow the Bruins to use property.  Thus, they must be leases said Judge Ruwe, who also interpreted several other aspects of the hockey business rather favorably for the Bruins.

As the Court points out in a footnote to its opinion, the IRS did not challenge at-home pre-game meals.  While the opinion does not explain why the IRS viewed home cooking and road meals differently, this observer thinks that it may be that the IRS’ challenge did rely significantly on the absence of “owned or leased” business premises – a fine distinction.

So, good for hockey teams.  This decision also portends well for many kinds of businesses that may provide meals to groups when away from home.  In many instances of which I am aware, businesses simply default to the 50% deduction for meals and entertainment.  Businesses and their tax advisors should look more closely at the deductions. This case may provide authority for deducting 100% of the cost of group meals when traveling, if the facts are similar to those in Jeremy M. Jacobs, et ux., 148 T.C. No. 24 (2017).  I don’t think that the subject employees must be big men missing teeth and hitting each other with sticks.

VKM

The Tax Court Likes Hockey

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