SDSU Qualified Business Deductions Related to their 2021M&E Expenses Memo

You have accepted a position as a staff accountant in the tax department at PWC, Los Angeles. Your first client assignment is on the tax service team for Creative Artists Agency LP (CAALP), a management agency representing some of the biggest musicians in the industry. CAALP’s lead internal accountant just emailed your manager with some questions about their qualified business deductions, who then forwarded the email to you (see below). Although you are nervous about the prospect of your first research question at your new job, you remember all that you learned in your tax class at SDSU, and you are ready to tackle this! You recall learning how to format a clear tax memo for your client file, and how to find and reference primary tax resources to support your answer.

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Good morning Tax Staff,

I got an email from CAALP this morning. They have some questions about their qualified business deductions related to their 2021 meals and entertainment (M&E) expenses. Please see the email below and prepare an internal memo for the client file.

Tax Manager

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Fwd email:

Hi Tax Manager

As you know, we have a lot of M&E expenses at CAALP, given the nature of our business! I heard from a colleague that there were some changes to the tax deductibility of M&E expenses, related to some COVID-19 relief packages. I know that these rules already just changed a few years ago after the major tax reform in 2017, so now I’m really confused about what is and is not deductible. Please see below for a summary of some of our most common M&E expenses over 2021. Are these expenses deductible? If so, are there any limitations on the costs? Are there any documentation requirements?

• Meals provided to our employees in the office who are working overtime
• Concert tickets included as part of employee compensation, reported on their Form W-2
• Country club membership dues for business meetings with industry executives
• Taking potential clients out to dinner at the hottest new Hollywood restaurants
• Employee outings to concerts, CAALP purchases dinner at the venue for everyone
• Our CEO likes to stock the office kitchen with snacks (e.g., yogurt, fruit, veggies, candy)
• Meals for the employees traveling away from home and not eating with clients

Thanks for your help!

CAALP Lead Accountant