Friday, July 7, 2017

Hockey Team Meals And Fairy Dust

Let’s say that you own a professional hockey team.

What is your biggest expense?

Your players, I would think.

You train them, coach them, house them, feed them, transport them.

Wait … did we say “feed them?”

Uh, yes. Here is an easy example: the team has an out-of-town game. I presume you are going to feed them while they are away from home and hearth.

We have walked into one of the tax Code’s nonsensicals.

Yes, I know: which one?

Are their on-the-road meals deductible?

Yes, but you may remember that only 50% of the meals and entertainment costs is deductible. The company has to eat the other 50%.

Why? Because of three-martini lunches and all that.

Fat cats. Write-offs. Loopholes. The Hallmark Channel.

Let’s say there is an uber-expensive – and secret - lunch in Georgetown between a media mouth and some cobbling bureaucrat. Why should you and I have to subsidize that behavior with a tax deduction?

But that is not your situation. You are feeding your players. Maybe you feed them because you want them present by a certain time, or you want your dietician to monitor their intake, or you want to minimize interruptions were they to go out for meals. Perhaps it gives everyone an opportunity to review game plans and prepare for media interviews.

But the tax Code lumps you in with those Georgetown pseudologists.

The Boston Bruins decided to push this issue. They deducted the full cost of their meals, not just 50%.
COMMENT: For the tax nerds, the issue before the Court was the “away” meals. The IRS was not concerned with “home” meals, for reasons we will not address here.
Two of their tax years – 2009 and 2010 – went to Court.

I had considered this is an uphill climb.

Code Section 274(n) waives the 50% axe.

(n)  Only 50 percent of meal and entertainment expenses allowed as deduction.
(1)  In general.
The amount allowable as a deduction under this chapter for-
(A)  any expense for food or beverages, and
(B)  any item with respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such activity,
shall not exceed 50 percent of the amount of such expense or item which would (but for this paragraph) be allowable as a deduction under this chapter.

But are there exceptions?

Yep.

For example, “de minimis” fringe benefits are not taxable to the employee.

Well, that is great for coffee and sodas at the office, but it seems that we are stretching the word too ….

Wait, a “employer-operated eating facility” can qualify as a de minimis fringe benefit.

Well, that is hay of a different barn. What does it take to be such a facility?

Here are two of several requirements:

(1) The facility has to cover its own direct costs on an annual basis.
(2)  The facility must be located on or near the employer’s business premises.

Hah, you say. There is no way that the Bruins can meet test one, as there is no “revenue” here. The whole thing is a “cost.”  

Would you believe me that there is a way – an obscure, head-scratching way – to string the tax Code together to spontaneously spark the required “revenue?”

There is and the Bruins made it. I will spare you the details.

On to test two.

Let’s say they are in Pittsburgh playing the Penguins.


Google tells me there is approximately 575 miles between Boston and Pittsburgh.

Seems a stretch that the Bruins are “on or near” their training facilities in Brighton, Massachusetts.

But have the Bruins rent-out a banquet room in a Pittsburgh hotel. Can one sprinkle fairy dust and argue that the rental transmogrifies the banquet room into Bruins “business premises” – at least for a while?

The Court really seemed to be in a favorable mood towards the Bruins. They emphasized the “function” of the banquet room rather than its actual location in space and time. Perhaps the banquet room identified as Bostonian.
We conclude that away city hotels were part of the Bruins’ business premises for the years in issue. In arriving at this conclusion we consider the traveling hockey employees’ performance of significant business duties at away city hotels along with the unique nature of the Bruins’ business (i.e., professional hockey).”
Having met that test, the Pittsburgh hotel in essence became “business premises” of the Bruins.

Bam! The Bruins have business premises in Pittsburgh.

The Court next considered whether the eating-facility-on-Bruins-business-premises-in-Pittsburgh qualified as a “de minimis” fringe benefit.

Well heck, I think the Court telegraphed its hand when it decided that a Pittsburgh hotel was “on or near” Brighton, Massachusetts.

To wrap this up, someone on the Court is a huge hockey fan and the Bruins got their 100% deduction.

I suspect that this type of meal expense is not what Congress was after with its Section 274(n) chop. It is nonsensical that the Code disallows a 50% deduction for employee meals when their job requires travel. This more resembles the histrionics of class envy than any rational tax argument.

However – and let’s be fair – that is what the tax Code says. 

Or said, more accurately.


All it takes is a court willing to sprinkle fairy dust.

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