By Dylan Moroses

Law360 (March 30, 2020, 3:50 PM EDT) -- President Donald Trump has called for expanding the business tax deduction for meals and entertainment as a way to provide economic relief to restaurants that have been devastated by the novel coronavirus pandemic.

Trump said during a news briefing Sunday that he has asked Treasury Secretary Steven Mnuchin to look into expanding a deduction for companies to write off the costs of their meal and entertainment expenses. Encouraging corporations to pay for employee meals would help restaurants during the coronavirus pandemic, because many have shuttered dining rooms across the country, he said.

"I think it'll have a tremendous impact and maybe keep them open," Trump said.

The Tax Cuts and Jobs Act eliminated the 50% business deduction for activities considered entertainment, but it allowed companies to continue to deduct half of business-related meal expenses. In February, the IRS proposed rules on the deduction that said, among other things, that meals must be paid for separately from entertainment expenses to qualify for the deduction.

Restoring the business expense deduction for meals and entertainment might encourage more to attend restaurants, but people are largely avoiding those establishments for public health safety reasons, and the provision might not be effective immediately, Garrett Watson of the Tax Foundation told Law360.

However, the change would require legislation and consideration by Congress, which could be focused on other ways to aid families and businesses during the coronavirus pandemic, Watson said. 

Michael Zona, a spokesman for Senate Finance Committee Chairman Chuck Grassley, R-Iowa, said: "Sen. Grassley will work with his colleagues on Phase Four legislation if it becomes necessary. It's too early to say what that legislation might encompass. It would need to address any ongoing problems in an effective manner."

Congress has passed three measures to help individuals and businesses as they try to navigate the health and economic crisis brought by the coronavirus pandemic: two bills that provided additional funding to states and food safety programs and a $2 trillion stimulus package that included several tax policies.

Howard Gleckman of the Urban-Brookings Tax Policy Center called Trump's idea "worthless" in the current environment, adding that it doesn't make sense to encourage business meals when restaurants are closed by government order or for public health safety reasons.

"They're not avoiding restaurants because they can't get a free martini lunch," Gleckman said.

Instead, the White House and Congress should be focused on helping businesses and families meet their daily expenses through the pandemic, much like the latest legislation passed into law, Gleckman said. Then they can shift emphasis to stimulating job growth and the economy once the pandemic wanes, he said.

Restaurants, the Tax Foundation's Watson said, should receive some benefit from the $2 trillion legislation Trump signed on Friday that included relief measures aimed at supporting jobless Americans, boosting business activity and providing resources for health care workers struggling to treat COVID-19, the respiratory illness caused by the coronavirus.

For example, the bill will give businesses the ability to carry back losses from 2018, 2019 and 2020 for up to five years, Watson said. Certain restaurants may also benefit from an employer tax credit of up to 50% of wages paid and a delay in payroll tax payments included in the legislation to help businesses retain their workforce, he added.

Lawmakers could look to further expand the tax treatment of net operating losses to help restaurants that may not have had profitability in previous years or face a cash flow crunch, Watson said. Restaurants typically have only 60 to 90 days' worth of cash on hand, so "every day counts," he said.

Businesses such as restaurants could be given the ability to accelerate or "cash out" their losses immediately to receive a benefit if they don't have previous profits that would offset their losses, Watson said.

The National Restaurant Association didn't immediately respond to a request for comment.

The House of Representatives passed H.R. 748, the Coronavirus Aid, Relief and Economic Security Act, by voice vote earlier Friday following several days of intense negotiations between Congressional leaders and Mnuchin. The bipartisan legislation passed the Senate in a 96-0 vote late Wednesday after lawmakers smoothed differences over expanded unemployment benefits, business tax breaks and aid to states and hospitals.

The White House declined to comment further.

--Additional reporting by Andrew Kragie and Stephen Cooper. Editing by Neil Cohen.

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