Reforming the Business Meal Deduction: Matching Statutory Limitations with General Tax Policy

The deduction allowed under the Internal Revenue Code for business meal expenses has been the subject of much discussion in recent years. Proponents urge that business entertainment expenses are a practical necessity in attracting and retaining business and are thus justified as generating additional taxable income. Critics complain that business taxpayers unjustly benefit from taking a deduction for such expenses while escaping taxation on the personal benefit or income derived from having participated in the activity. This article examines the present statutory requirements for the deductibility of business meals and reviews recent judicial decisions in this area. Following a summary of the significant legislative attempts at reform during the Kennedy, Carter and Reagan administrations, the author proposes a limited business meal deduction that would require a more restrictive business connection between the incurring of the expense and the production of income