The Boston Bruins’ Meal Expenses Set Precedent for De Minimis Fringe Benefits

The U.S. Tax Court recently held in Jacobs v. Commissioner[1] that the owners of the Boston Bruins, a National Hockey League (NHL) franchise based in Boston, could deduct the full amount of expenses spent on meals for players and all traveling staff at hotels during away games.

The limitation on meal and entertainment expenses and the de minimis fringe exception:

Section 162(a)[2] of the Internal Revenue Code allows a taxpayer to deduct all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Section 274(n) further provides that a taxpayer can deduct only 50% of meal and entertainment expenses that are otherwise deductible under Section 162, absent an applicable exception. The policy behind this limitation on deductible business expenses is that the cost of meals and entertainment is inherently personal.

One of the exceptions to the Section 274(n) limitation, however, is the de minimis fringe exception provided in Section 274(n)(2)(B): if the expenses for food or beverages constitute a de minimis fringe benefit[3] under Section 132(e), then the expenses are 100% deductible.

The Tax Court held that for meal expenses to qualify as Section 132(e) de minimis fringe benefits, the employees’ meals must meet the following six requirements:

  1. be provided in a nondiscriminatory manner,
  2. the eating facility is owned or leased by the employer;
  3. the facility is operated by the employer;
  4. the facility is located on or near the business premises of the employer;
  5. the meals furnished at the facility are provided during, or immediately before or after, the employee’s workday; and
  6. the annual revenue derived from the facility normally equals or exceeds the direct operating costs of the facility (i.e., the revenue/operating cost test).[4]

The implications of the Bruins case:

First, the opinion implies that strict requirements in employment contracts and simultaneously conducted business activities are important facts. In the opinion, the Tax Court noted that the NHL requires the Bruins to play half of their games away from their hometown area and to arrive in the away city at least six hours before the game or one day earlier if the flight to the away city is greater than 150 minutes. Moreover, the Tax Court noted that attendance at pregame meals is mandatory for all players (where absent players would be fined or benched) and the Bruins conducted team business during the mealtimes.

Second, the decision may also apply to other types of businesses where the employees’ meals are part of their work travel schedule. In the opinion, the Tax Court held that: (1) the Bruins leased an eating facility, (2) the Bruins had contracted with another business to operate the eating facility, and (3) the “away-city hotels constituted part of the Bruins’ business premises.” Because the hotel meal expenses easily satisfy the other three requirements, the Tax Court concluded that the hotel meals at issue qualify as Section 132(e) de minimis fringe benefits and are therefore 100% deductible.

This decision has broader implications and may be applied to other businesses where meals are part of the employees’ work travel schedule under similar circumstances (e.g., television, film, concert touring, etc.) However, because the Court emphasized the unique facts of a professional sports team in addressing the above issues, tax practitioners caution that it will be a bigger stretch for the non-entertainment industries to use this decision as a basis for falling within the de minimis fringe exception.

[1] Jacobs v. Commissioner, 148 T.C. No. 24, 2017.

[2] All section references are to the Internal Revenue Code (Code).

[3] The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable. Section 132(e)(1).

[4] Jacobs v. Commissioner, 148 T.C. No. 24, 2017 at 7; Section 132(e)(2).

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