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Expenses for Meals Provided to Professional Hockey Team While Away from Home Were Fully Deductible

(Parker Tax Publishing July 2017)

The Tax Court held that the owners of a professional hockey team could fully deduct the cost of pregame meals provided to team players and team personnel while the team was away from home. While the deduction for meal expenses under Code Sec. 274 is generally limited to 50 percent, the team's pregame meals qualified for the exception for de minimis fringe benefits. Jacobs v. Comm'r, 148 T.C. 24 (2017).


Jeremy and Margaret Jacobs own the Boston Bruins, a National Hockey League (NHL) franchise, through three S corporations. Each NHL team plays 82 regular season games per season, 41 at arenas in cities other than Boston. The NHL requires teams to arrive in the away city at least six hours before the start of an away game. Under the collective bargaining agreement (CBA) between the league and the teams and the players, a team must travel the day before the game if the flight to the away city is greater than 150 minutes.

For the years at issue, the Bruins traveled to away games with a contingent that typically included 20-24 players plus the coaches, medical personnel, trainers, equipment managers, communications personnel, travel logistics managers, public relations/media personnel, and other employees. The Bruins made their hotel arrangements before the beginning of the season. The contracts between the team and the hotels typically included sleeping accommodations and banquet or conference rooms where pregame meals and snacks were served. The hotels prepared the pregame meals and snacks according to the Bruins' specifications, and the food was made available to all team employees.

IRS Limits Meal Expenses to 50 Percent

The Jacobses claimed deductions for meal expenses provided to the Bruins' traveling employees in cities other than Boston. The deductions totaled approximately $127,000 for 2009 and $142,000 for 2010. The IRS issued a notice of deficiency disallowing 50 percent of the claimed deductions under Code Sec. 274(n), which generally provides that only 50 percent of meal expenses are deductible unless an exception applies.

Taxpayer's Arguments for 100 Percent Deduction

The Jacobses filed a Tax Court petition arguing that the meals were fully deductible under Code Sec. 274(n)(2)(B), which provides that the 50 percent limitation does not apply if meal expenses are excludible from the gross income of the recipient as a de minimis fringe under Code Sec. 132(e). The operation of a meal facility is a de minimis fringe if (1) the eating facility is owned or leased by the employer, (2) the facility is operated by the employer, (3) the facility is located on or near the employer's business premises, (4) the meals are furnished during, or immediately before or after, the employees' workday, and (5) the annual revenue from the facility normally equals or exceeds the direct operating costs of the facility (the revenue/operating cost test). The de minimis fringe rule applies to highly compensated employees only if access to the meal facility is available to each member of an employee group, defined under a reasonable classification by the employer, and does not discriminate in favor of highly compensated employees.

Tax Court's Decision

The Tax Court held that the Bruins' provision of pregame meals to players and personnel at away city hotels qualified for the de minimis fringe exception, and the cost of the meals was therefore not subject to the 50 percent limitation. First, the Tax Court determined that the meals were provided in a nondiscriminatory manner with respect to highly compensated employees. The court found that the classification of traveling employees was a reasonable grouping given the nature of the team's business. It also found that the meals were provided to all of the traveling employees on substantially the same terms, and any discrepancy between anticipated and actual meal attendees was a function of cost reduction concerns and not discrimination.

Next, the Tax Court found that the pregame meals met all of the other requirements for a de minimis fringe under Code Sec. 132(e). The Tax Court noted that the Bruins owned or leased the eating facilities because, although the hotel contracts were not specifically identified as leases, they were leases in substance because they gave the Bruins the right to use and occupy the meal rooms. Although the Bruins did not provide separate consideration for the meal rooms, the court found that they were essential to the team's away city business operations and that the hotels provided the rooms free of charge because the Bruins paid for lodging and food. Further, the Bruins dictated several aspects of the setup of the rooms, including the furnishings and the presence of audiovisual equipment, as well as requiring the hotel not to disclose the location of the rooms to the general public. In the Tax Court's view, the agreements between the team and the hotels qualified as contracting with another to operate an eating facility for its employees as described in Reg. Sec. 1.132-7(a)(3).

Next, the Tax Court determined that the away city hotels qualified as part of the Bruins' business premises. An employer's business premises include places where employees perform a significant portion of their duties or where the employer conducts a significant portion of its business. The hotels were the Bruins' business premises, in the view of the Tax Court, not only because the team's business required it to travel, but also because, under league rules and the CBA, it was required to arrive at least six hours before a game and in some cases the day before a game. The hotels were essential to the Bruins' effective preparation and were used by the team to conduct business, according to the Tax Court. The court reasoned that the pregame meals provided essential nutrition to the players to maximize performance and were a forum for the team to maximize preparation time and conduct team business. The court also noted that it was not possible to conduct all of the team's necessary activities in Boston or at the opposing teams' arenas. The court rejected the IRS's arguments that the employees' activities at the hotels were insignificant compared to the actual games and that the team spent quantitatively less time at each away city hotel than at the team's Boston facilities. The Tax Court reasoned that the team preparation activities at the hotels provided important benefits to the players throughout the season. Further, although the time spent in any one city was far less than the time the team spent in Boston, half of the team's regular season games were required to be away games.

The Tax Court then applied the revenue/operating cost test. Under Reg. Sec. 1.132-7(a)(2), an employer-operated eating facility satisfies the revenue/operating cost test if the employer can reasonably determine that the meals are excludable to employees under Code Sec. 119. An employee can exclude meals under Code Sec. 119 if they are furnished on the employer's business premises and for the employer's convenience. Meals are provided for the employer's convenience under Reg. Sec. 1.119-1(a)(1) if furnished for a substantial noncompensatory business reason.

The Tax Court held that the pregame meals were provided for a substantial noncompensatory business reason because they were provided first and foremost for nutritional and performance reasons. The pregame meals enabled the Bruins to effectively manage a hectic schedule by minimizing unproductive downtime and maximizing time dedicated to activities that helped further the team's goal of winning hockey games. There was thus a substantial noncompensatory reason for the meals and they were therefore furnished for the convenience of the team. Having earlier found that the hotels were the team's business premises, the Tax Court concluded that the meals passed the test for employee excludability under Code Sec. 119, and the revenue/operating cost test was therefore satisfied.

For a discussion of the deduction for meal and entertainment expenses, see Parker Tax ¶91,115.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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