By Jim Conway
When I first started doing tax farm returns, I ran across an expense account named “Meals”. My mind immediately went to the assumption that these meals were only 50% deductible. However, a colleague pointed out this was “harvest meals,” which were brought out to the fields so the crew could keep going with the harvest. These were not the infamous three martini lunches that originally drove Congress to make meals and entertainment only 50% deductible. I always resented that inference by Congress that many businessmen were abusing the business lunch deduction.
Meals provided to your employees at harvest are fully deductible to you and are not taxable (excludable) to your employees, as they are considered a de minimis fringe benefit. Meals that qualify for the “convenience of the employer” doctrine include the following:
• When employees need to be available for extended and unusual hours, such as when the harvest is going late and where there is limited availability of open restaurants.
• When employees are at isolated job sites, again, where access to restaurants are not readily available.
• When the meals are provided in a nondiscriminatory manner.
These points and others were brought home recently again in a tax court decision regarding the Boston Bruins and the full deductibility of the meals on the road provided by the hockey team. The IRS argued that these meals should be subject to the 50% deductibility limit as Travel & Entertainment, but the tax court ruled that these were indeed a fully deductible de minimis fringe benefit, and therefore 100% deductible. The court made their argument based on these points:
The Bruins provided catered meals and snacks for all staff traveling to away games.
The Bruins noted that the meals and snacks are available for all traveling staff but that player attendance was mandatory.
Breakfast and lunch were provided before night games and brunch before afternoon games. By controlling the “diet choices” available, the Bruins argued that they were able to minimize problems with upset stomachs and also meet player nutritional requirements.
The court found that because all traveling staff could use the meal facilities, the meals were provided in a nondiscriminatory manner.
The IRS argued that since the meals were not prepared and served in a traditional employer’s cafeteria, they should not qualify as an excludable fringe. But the court rightly noted that you have to take into the consideration the unique nature of the industry and overruled the IRS. I would argue that this applies to the unique nature of agriculture as well. Catering meals out to the fields from a restaurant or buying the groceries and preparing the food and taking it out to the fields helps keep the harvest going, so consider them 100% deductible!
Conway is senior tax specialist and Certified Public Accountant with AgCountry Farm Credit Services, Fargo, N.D.