On April 8, 2021, the Treasury Department and the Internal Revenue Service issued guidance regarding the temporary 100-percent deduction for food and beverage purchased from restaurants.

Beginning January 1, 2021, through December 31, 2022, businesses can deduct 100% of their food or beverage expenses paid to restaurants if the business owner (or an employee of the business) is present when food or beverages are provided, and as long as the expense is not lavish or extravagant under the circumstances.

The guidance defines eligible restaurants to include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. Specifically excluded from the definition eligible for the 100% deduction are grocery stores, convenience stores, and any other businesses that primarily sell pre-packaged goods not for immediate consumption; but the 50% deduction will continue to apply to such businesses.

Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.