Marianna Dyson Comments on Broad Implications of Tax Court Challenge to NHL Team Over Meal Expenses in Tax Analysts

News Analysis: Are the Bruins About to Hip-Check the IRS on Meal Expenses?
Tax Analysts

Marianna Dyson commented on the potentially broad implications of the Internal Revenue Service's (IRS) challenge to the expensing of meals by the owners of the Boston Bruins hockey team. The IRS is seeking to impute nearly half a million dollars of additional income on the team, which the team asserts were appropriately deducted meal expenses for players and staff during away game travel. The Bruins' petition argues that for each away game, the hotel is the club's primary business premise and the mandatory meals are critical to the players' jobs. "I think the taxpayer in this case has the better side of the argument. If a team moves a workforce en masse, rents space in a hotel, makes the team members train, stay, and eat there, the space at the hotel becomes the team's operational center," Dyson said. "It may be a temporary one- or two-day thing, but why doesn't that arrangement qualify as the temporary business premises of the employer?"

What remains in dispute is the fact that the definition of an "eating facility" within the meaning of the de minimis fringe exclusion is not clearly defined under the tax code. According to Dyson, there is no requirement that the taxpayer have a long-term lease or "four walls" to the business premises, and thus a traveling base of operations could be permissible for establishing an "employer-provided eating facility." Referring to sections 119 and 132 and noting statutory changes in the late 1990s that permit 100% deductibility of meals provided for the convenience of the employer in de minimis "eating facilities," Dyson said, "Basically, what you have here are dueling exclusions." The section 132 exclusions were enacted to provide consistency on how fringe benefits are treated by the IRS but in the case of meals, the inclusion of the de minimis fringe benefits exception did not indicate congressional intent to alter the application of section 119. "Section 119 has been in the code since the earth cooled," she said. "Convenience of the employer is an old, powerful body of law."

Looking toward prospects for the IRS and the Bruins, "The petition is brilliant ... because it builds the argument that the employer has dominion and control over not only what the employees are doing when they are on the road, but over the space," Dyson said. "I think [a decision] in the taxpayers' favor could open this up to a lot of fact patterns. This is going to apply to situations where an employer is obligated to move armies of employees and takes control of space to feed them so that they can provide their services." Noting that the underlying issue has remained unresolved for many years, Dyson said, "If I were the [IRS], I would not litigate this case."

Related Files
Related Links