A Catholic evangelist was refused nearly $40,000 in tax deductions as the Tax Court judge felt that he benefited personally from the spending and not the nonprofit he is working with.
Annapolis Md resident Robert Oliveri crisscrossed the United States, preaching the Word of God to whomever he meets. Marketwatch reports, he “evangelizes people he happens to see when he engages in otherwise personal activities, such as when he eats in restaurants, travels, and pilots private planes”. This allowed him to argue that much of his expenses during his travels were tax deductible but the IRS and judge felt otherwise.
The judgment stated, ‘For the expense to be deductible, the charity, rather than the taxpayer, must receive the primary benefit’. In the view of the judge Oliveri himself took a large part of the benefit in his socializing rather than the charity. Marketwatch reported, “he was also personally benefiting from the purchase of meals, flights, phone and internet service.”
If Oliveri could have proven that his meals and entertainment was of benefit to the organization he founded, Brothers and Sisters of the Divine Mercy, his expenses may have been granted him but that is subject to fairly strict controls by the IRS.
What is tax deductible meals and entertainment (M&E)?
The first thing you should remember is that in 2017 the IRS “eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.” That means Oliveri couldn’t fly a plane in a circle from the airfield and land in the same place and deduct that, unless he could prove that the evangelizing he was doing as he flew the plane had positive benefit for his religious organization. He didn’t convince the judge.
You the private business owner couldn’t even get away with saying you’re doing a business deal up there as this would be considered ‘entertainment’ unless you were either selling that plane (or threatening to throw them out unless they did the deal but other Federal authorities wouldn’t like that idea and you would be caged!).
There are some nuances to this. If you are a journalist doing a theatre or movie review then this could be 100% deductible as that counts as part of the work you are doing. The same might apply to you reviewing a restaurant, but that is a fairly narrow exception. Another example where this is 100% deductible is where the customer pays you for the entertainment you have purchased. In the case of going for a flight in a plane, they would pay you a fee for you to take the plane out, which you yourself had paid for.
The IRS are fairly clear about meals too. They state, “Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.” This largely means that you can take a current or potential business customer to dinner at a restaurant as long as it is part of your sales and marketing funnel. Even so, only 50% of that meal will be considered tax deductible.
You should really only have a meal that is ‘not considered lavish or extravagant’. This is not to say you will cut a million dollar deal at a burger joint, but equally if you are looking to make a $2000 sale from this deal you shouldn’t expect the IRS to accept you eating at Spago of Beverly Hills! There is room for judgment here but essentially don’t expect to eat above your station at the IRS expense.
There are nine examples where you can claim 100% of the meal back from the IRS. Forbes has a great article that goes into some detail. Here are a few highlights:
Where an expense is treated as compensation for an employee or contractor, then this can be 100% deductible, as are company picnics to maintain inter and intra-team relationships. Where there is a dinner for board members and / or shareholders, since these are specifically for the benefit of the business then you can get the expense deducted from your tax bill.
The takeaway With a bit of imagination you can enjoy yourself on M&E expenses. You just need to cut them according to your cloth and it should be perfectly OK with the tax man. The IRS doesn’t like Mickey takers!
Related: Defense Tax Group