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Law360 (April 8, 2020, 2:58 PM EDT) -- President Donald Trump's suggestion to restore the full tax deduction for business entertainment and meal expenses would do little to alleviate the novel coronavirus pandemic's adverse economic impact on restaurants, a Congressional Research Service report has said.
If Congress were to restore the full deductions, the effects would be mitigated by social-distancing orders that have limited restaurant traffic and reduced other large gatherings to curb the spread of the virus, the nonpartisan research group said in a report dated Monday.
Furthermore, businesses wouldn't realize tax savings from the restored full deduction until the end of their next tax years, rendering the proposal ineffective in the immediate future for dining establishments and businesses in the entertainment industry, the report said.
"The bang for the buck of full deductibility for entertainment and meal expenses would likely be relatively small," the report said.
Full deductions would provide the most direct benefit to businesses that depend on entertainment and meals in their business planning, the report said. The aid, the report said, would be restricted to companies that are coping best with the economic fallout of the virus, which causes the respiratory disease COVID-19.
Trump said at the end of March that he had asked Treasury Secretary Steven Mnuchin to explore expanding the deduction for companies to write off the costs of their meal and entertainment expenses. Restoring the full deduction might encourage businesses to pay for employee meals and keep restaurants open, he said.
The 2017 Tax Cuts and Jobs Act
curbed businesses' ability to claim the deduction by largely eliminating entertainment expense deductions and decreasing the deduction for meals provided for employer convenience from 100% to 50%. The overhaul retained the 50% deduction for business meal expenses.Under the Internal Revenue Service's proposed rules to carry out the changes, meals must be paid for separately from entertainment expenses to qualify for the deduction.
The U.S. lost about 701,000 nonfarming jobs in March, 459,000 of them in the leisure and hospitality industries, according to a monthly report from the U.S. Department of Labor. Most of the jobs lost in those sectors were in food services and drinking places, the report said, detailing the rise in unemployment resulting from the pandemic.
Trump has approved three coronavirus economic relief measures. They include the Families First Coronavirus Response Act
, which provides refundable tax credits to compensate for paid family and paid sick leave. The Coronavirus Aid, Relief, and Economic Security Act , signed March 27, offers tax credits to businesses that are partly or fully shut down because of the pandemic but continue to pay wages and health care expenses.The White House and the National Restaurant Association didn't immediately respond to requests for comment.
--Additional reporting by Dylan Moroses. Editing by Neil Cohen.
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