For Wall Street banks, treating clients to the 45-day dry-aged bone-in rib eye at Delmonico's in Manhattan could now cost the full $65, thanks to President Donald Trump's tax law.
The overhaul delivered a windfall to corporate America by slashing the tax rate to 21 percent. But one of the law's provisions could curb wining and dining of clients, a mainstay of the finance, investment, law and lobbying industries.
Under the old tax regimen, companies could deduct 50 percent of business-related expenses when entertaining clients and discussing work -- so high-end meals, golf outings and concert tickets were all generally covered. Tax experts initially thought the law, which was signed in December, eliminated the deduction for so-called entertainment expenses, while preserving the 50 percent write-off for business meals.
Now, tax lawyers and accountants are saying a closer read shows that deductions for client meal expenses may no longer be allowed either -- and warning their clients to proceed with caution.
It all boils down to whether a meal is considered entertainment. The new law says no "entertainment, amusement or recreation" of any kind is deductible -- even if it's related to the active conduct of business. But it doesn't explicitly say that business meals are no longer deductible.
For Ruth Wimer, an executive compensation lawyer and accountant at Winston & Strawn in Washington, the answer is clear. "If I'm a hedge fund manager and I take a current or prospective investor to a Hell's Kitchen steakhouse, it is completely nondeductible," Wimer said.
The American Institute of CPAs urged the Treasury Department and Internal Revenue Service earlier this month to provide immediate guidance to clear up taxpayer confusion about the deductibility of business meals. The institute, which formed a meal and entertainment task force, asked for clarification on client business meals separate from entertainment events as well as those before, during or after entertainment events.
For now, major accounting firms are trying to make their clients aware of the potential change. PricewaterhouseCoopers said in a March note that it's unclear whether the IRS may seek to deny deductions for meals that are associated with nondeductible entertainment. Since many expenses include elements of entertainment and business, it will be difficult for companies to distinguish between and account for those costs, according to PwC.
"I'm telling people I think this is a big deal," said Mark Kohler, an accountant and lawyer in Cedar City, Utah. "A lot of people close major deals while breaking bread."
-- Information for this article was contributed by Ben Steverman and Leslie Patton of Bloomberg News.
SundayMonday Business on 04/15/2018