Perks of the job, deductible fringe benefits

Your Guide to State, Local, Federal, Estate + International Taxation

fringe benefits, tax, deduction, Bruins, IRSMaybe I’m alone in this, but as a sports fan, I sometimes wonder what it might be like to own my own franchise. While the dream is likely just that – a dream (barring some huge Lotto win) – the next logical thing I do as a CPA is think about the various tax implications such ownership would have. (Yes, seriously. I’m a blast at parties.) So naturally, when I saw a headline about how the NHL’s Boston Bruins recently won a tax court case concerning deductible fringe benefits, I had to check it out.

In Jacobs v. Comm’r, 148 T.C. No. 4 (6/26/17), the IRS was concerned about the Bruins providing meals for their players and traveling staff on game days. These meals were provided as the team traveled to away games 41 times per year, and were furnished through the team’s hotel. Such meals, they said, should have been only 50% deductible under the meals and entertainment rules. The court sided with the Bruins, saying such meals were not 50% deductible, but 100% deductible as de minimis fringe benefits (benefits provided by a company that are small enough to not warrant any additional income to the employee, but still be deducted by the company).

De minimis fringe benefits, specifically meals, must be nondiscriminatory (every employee must be offered the food), and must also meet five separate tests to be 100% deductible by the employer. I won’t bore you with the details, but know that the Bruins met all five tests and thus won their case.

So why should you care about this case and how it applies to your business? We see very often clients who have large meals and entertainment expense categories that are not broken out between 50% deductible “entertainment” expenses (taking clients and prospects to lunch, etc.) and 100% deductible employee expenses (buying the office lunch, company holiday celebrations, etc.). It would make sense that if you provide benefits for your employees like the Bruins did to track those separately and get your full deduction allowed.

Please make sure to consult your CPA about your specific situation and whether or not you meet all the tests mentioned above.

Brock R. Yates, CPA, MT