Trump Considers Restoring Full Corporate Tax Deduction for Meals

    The restaurant industry has already lost more than 3 million jobs from the COVID-19 pandemic.

    Legal | March 2020 | Danny Klein
    Sandwich in container in red car.
    Unsplash/Oliur
    Restaurants have been forced to go takeout, delivery, and drive-thru only in the wake of social distancing mandates.

    President Donald Trump Sunday floated the notion of restoring corporations’ ability to deduct the full cost of meals and entertainment from their taxes. He also acknowledged the crippling affects social distancing and stay-at-home mandates have had on the hospitality industry during the COVID-19 crisis to date.

    President Trump said not all restaurants are “going to make it back,” and “despite the fact that they could be open in the not too distance future … there are some that aren’t going to be able to get open.” The National Restaurant Association pegged the financial impact over the first three weeks of March at $25 billion in sales lost and more than 3 million jobs. It said 3 percent of operators have already closed permanently and 11 percent could in the next 30 days. Sales plummeted 47 percent from March 1 to March 22. The Association also noted seven in 10 restaurants had to lay off employees and reduce work hours, and nearly 90 percent (88) said total sales volume over that 22-day stretch was lower than a year ago.

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    In 2017, a Republican tax overhaul signed by the President, which slashed the U.S. corporate tax rate to 21 percent, revoked a provision that allowed corporations to deduct “any expenses related to activities generally considered entertainment, amusement or recreation” from their annual taxes.

    Corporations today can deduct 50 percent of the costs of meals, including employees and current or potential customers or clients so long as the meals “are not considered lavish or extravagant.”

    The IRS issued guidance in October 2017 following law changes in the Tax Cuts and Jobs Act. Food and beverages that were provided during entertainment events were also not considered entertainment if purchased separately from the event.

    We’re going to go to deductibility so that companies can send people to restaurants. I think it will have a tremendous impact and maybe keep them open,” he said. “… So we’re going to look at the restoration of the restoring of the deductibility of meals and entertainment costs of corporations so that corporations can send people to restaurants and take a deduction on it like they did in the old days. That was when restaurants were doing really well."

    As The Hill explains, changing the U.S. tax code would likely require an act of Congress. There’s been no word as to whether or not lawmakers or industry representatives support the idea.

    President Trump said he spoke to chefs Wolfgang Puck, Daniel Boulud, and Jean-Georges Vongerichten about the possibility, as well as other ways to aid the industry. He said he’s asked Treasury Secretary Steven Mnuchin and Labor Secretary Eugene Scalia “to immediately start looking into the restoring of the deductibility of meals and entertainment costs for corporations.”

    "The restaurant business has been probably one of the hardest-hit industries. I have directed my staff to use any and all authority available to give restaurants, bars, clubs, incentives to stay open," President Trump said. 

    In recent days, restaurant leaders have continued to press the administration for aid as many of the government’s directives directly damage the industry.

    The McClatchy Washington Bureau said Friday that many restaurants advocates don’t believe the $2 trillion economic relief packaged signed into law Friday by Trump will be enough to stem massive closures.

    It grants restaurants, among other things, access to billions of dollars in loans they don’t have to pay back if they retain their employees throughout the COVID-19 crisis.

    In particular, the Small Business Administration loans could avert mass layoffs for America’s second largest private-sector employer, which employs roughly one in every 10 working Americans.

    McClatchy said restaurants focused on seeking help, however, will now have to contend with insurance companies that are denying restaurants their insurance claims by refusing to characterize the pandemic as an “act of God” business interruption, as would apply to natural disasters such as hurricanes.

    “If this is not an ‘act of God’ that stops a restaurant’s operation, I don’t know what is,” Sean Kennedy, executive vice president at the National Restaurant Association, told McClatchy. “It’s a very dire situation.”

    Kennedy added that restaurants will look to ask elected officials for help on business interruption insurance. He did say the CARES Act was “a tremendous first step” and should enable restaurants to keep “their lights on a little longer.”

    “But for the long-term needs of this industry, we are going to need more out of Congress,” he said.

    A top-line concern for restaurants, regarding this language, involves the so-labeled “forgivable” expenses and how they can’t be used retroactively. It’s left many operators asking if they should retain employees and hope the aid arrives quickly or furlough workers and try to bring them back when the loan cashes. It’s written with incentives to encourage this, as loan forgiveness is contingent on rehiring employees.

    The CARES Act allows restaurants with fewer than 500 employees to request assistance from a $349 billion pool within the SBA. It will forgive the loans if the restaurant keeps its employee count at pre-coronavirus levels for the duration of the pandemic.

    According to McClatchy, a senior Senate Republican aide involved in the negotiations said the Treasury Department will eventually have to issue guidance for other restaurants about the terms of the loans and timetable for paying them back.

    Originally, a legislative proposal excluded restaurant owners with 500-plus employees spread out across a multi-unit system, including someone who runs a line of franchises. But restaurant industry lobbyists worked with lawmakers to negotiate a waiver so owners with multiple venues could receive loans as long as each restaurant does not employ more than 500 people.

    Vice President Mike Pence said Thursday restaurants owners would “now be able to keep people on the payroll for a period of months, even if the restaurant or the business is not open.”

    The main point at hand is dealing with companies denying business interruption insurances. “I know that the White House has heard about this issue from a number of restaurant owners and the National Restaurant Association,” Kennedy told McClatchy.

    Per the publication, White House officials are exploring a fund that could offset the denied insurance claims.

    The restaurant industry requested $100 billion to create a federal fund to provide business interruption insurance for restaurants during CARES Act negotiations. McClatchy said that request could come up again during negotiations on any subsequent congressional economic relief package.