Tax Court Denies Meal Expenses

In a new Tax Court case (Windham, TC Memo 2017-68), the IRS completely denied the taxpayer’s travel and entertainment deductions, including meals due to the lack of requisite proof.

Most business owners are not aware of the stringent record keeping retirements imposed by the IRS relating to travel and entertainment expenses (T&E), including meals.

The IRS requires taxpayers to record the following four elements for every T&E and meal expense:

  1. The amount of the expense;
  2. The time and place of the expense
  3. The business purpose of the expense;
  4. The business relationship.

The taxpayer must keep evidence, such as the receipt, if the T&E and meal expense exceeds $75.

Facts of the case:

  • $10,000 of meal expenses:
    The taxpayer is a stockbroker residing in Florida and has extensive real estate holdings. In 2010, she frequently met with her brokerage clients for lunches and dinners, costing her almost $10,000.
  • Shoddy records:
    Taxpayer entered into evidence receipts which included the name or names of the individual or individuals entertained, but not the business purpose for any of the meals. Some were duplicates and others were illegible. The taxpayer also testified that the expenses included meals associated with her rental real estate activities and various charities for which she volunteered.
  • Decision:
    The Tax Court denied the deductions for the business meals, due to the shoddy record keeping.
  • Take-away:
    Business owners should be reminded of the stringent rules relating to travel and entertainment. Fortunately, there are solutions out there that will help with the record-keeping requirements. Apps such as Shoeboxed, Receipt Bank, Expensify, Tallie, IQBoxy, etc., can store T&E receipts and even extract the data to the accounting system.
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