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Trump’s Proposal to Prop Up Restaurants Gets Poor Reviews

Posted on Mar. 31, 2020

President Trump suggested restoring the full deduction for meals and entertainment expenses as a way to keep restaurants in business, but many tax observers say that’s a half-baked choice at best.

Restaurants have been one of the hardest-hit industries during the coronavirus-related economic shutdown, Trump said March 29 at a White House press conference. As such, Trump said he had “directed all my staff to use any and all authority available to give restaurants, bars, clubs incentives to stay open.”

One incentive being considered is to have Treasury and the Department of Labor explore ways to restore the full deductibility of meals and entertainment expenses so companies will be more inclined to send their employees to restaurants, Trump said, adding that he thinks it could have a “tremendous impact.”

Before the enactment of the Tax Cuts and Jobs Act, a 50 percent deduction was generally allowed for business meals and entertainment expenses. The 2017 tax law effectively eliminated the deduction for entertainment expenses and imposed new limitations on deductions for business meals in specific circumstances.

Send It Back

Trump’s proposal received little enthusiasm on the merits from tax observers.

“It just doesn’t add up,” Frank Clemente of Americans for Tax Fairness told Tax Notes. “A, we don’t want to be encouraging people to go out and have meals right now. And B, there’s going to be a lot of pent-up demand to go and have meals as soon as this is over with.” Tweaking a tax break for businesses would have a negligible effect on that, he said.

Nicole Kaeding of the National Taxpayers Union found the proposal perplexing, noting that the problem restaurants are facing now is that they’re closed for public safety, not because of a lack of demand. “Boosting demand doesn’t change that fact,” she said.

The focus by the Trump administration should be on getting liquidity to small businesses to help them weather the pandemic, so if anything helps accomplish that objective, “we’re all for it,” Thomas M. Sullivan of the U.S. Chamber of Commerce said on a March 30 call with reporters. For example, the $350 billion in Small Business Administration loans authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) is a great first step in that direction, he explained.

But, Sullivan added, “I think you need, certainly, for customers to get to restaurants and other places before they actually spend.”

One Small Thing

Even if the Trump administration wanted to restore full deductibility for meals and entertainment expenses, it would take more than just Treasury and the Labor Department working together to do it.

“The idea that deductions can be decreed by Treasury violates the familiar maxim that deductions are a matter of legislative grace, as well as the Constitution,” said Clinton G. Wallace of the University of South Carolina School of Law.

Congress frequently revisits the deductions for meals and entertainment expenses, and the executive branch lacks the broad authority it would need to adjust those deductions. “Quite the contrary: Congress has been very specific about what is deductible and to what extent,” Wallace said.

Treasury has already been pushing the bounds of its regulatory authority, with proposed regulations (REG-100814-19) that “very arguably contravene Congress’s purposes in the 2017 Tax Act by allowing significant deductions for entertainment meals,” according to Wallace. “Those regulations should already be beyond the pale,” he said.

Rebecca Kysar of the Fordham University School of Law acknowledged that Treasury does have some authority to nibble around the edges of the meals and entertainment expense statute, noting, for example, that it can choose to elaborate on what constitutes an entertainment activity.

But for what Trump seems to have in mind, an act of Congress would be needed, because the current limits on meals and entertainment expenses are built into the statute. And while Trump has declared a national emergency over COVID-19 that gives Treasury and the IRS more flexibility, that extra authority is limited to delaying deadlines, not rewriting tax laws, she said.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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