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Feed the bears: Pre-game meals as tax deduction
By Jeffrey Herman on July 21, 2017 at 9:50 AM

Man holding fork and knife with a plate of moneyThe U.S. Tax Court ruled on June 26, 2017, that the Boston Bruins of the National Hockey League could deduct the full cost of meals before the team’s 41-plus away games in the regular season and playoffs. The decision provides a clear path for professional sports teams — and potentially other employers in similar situations — to realize additional tax savings.

In 2009 and 2010, the Bruins spent $255,754 and $284,446, respectively, on meals for players and certain staff members before away games. That is a lot of food, but these are big guys, like 6-foot-9-inch team captain Zdeno Chára.

The owners of the franchise sought to fully deduct these amounts from taxes. Code § 274, however, places limits on certain types of deductions, and the Internal Revenue Service limited the deductions to 50 percent of meal expenses pursuant to § 274(n)(1). The Bruins were notified of a tax deficiency.

The owners, however, threw down their gloves and claimed they were entitled to a full deduction under § 274(n)(2)(B), an exception to the 50 percent limitation when meals are excludible from a recipient’s gross income as a de minimis fringe benefit under § 132(e).

In order to qualify as a de minimis fringe benefit, the Bruins had to show, in part, that:

  1. The Bruins “leased” the hotel dining rooms players and staff ate in;
  2. The Bruins “operated” the dining rooms;
  3. The dining rooms were located on or near the Bruins’ “business premises”; and
  4. The annual revenue derived from the dining rooms normally equaled or exceeded the operating costs.

The Tax Court found each requirement met.

First, the Bruins “leased” the hotel dining rooms because they were part of the team’s contract with each hotel, even though the contract was not called a “lease,” and even though the hotels agreed to provide the dining rooms free of charge.

Second, the Bruins “operated” the hotel dining rooms because they contracted with the hotels for the meals, and the hotels operated the dining rooms in accordance with the team’s requirements. In other words, by paying the hotels to operate the hotels’ own dining rooms, the Bruins were treated as “operating” the rooms for their players and staff during meal times.

Third, the hotels were the team’s “business premises,” because the Bruins had to travel and stay in hotels in order to play away games, and the hotels were also used for pre-game preparation, such as medical treatment, physical therapy, and massages.

Finally, revenue equal to the operating costs was deemed generated. Under Code § 132(e), an employee is treated as having paid an amount equal to the operating costs for a meal if the employee can exclude the meal from gross income under § 119. Under § 119, an employee can exclude a meal that is furnished on an employer’s “business premises” for the employer’s convenience. The Tax Court naturally found that providing pre-game meals was convenient to the Bruins.  

Accordingly, the Bruins were allowed to take a full deduction for their pre-game meals when away from Boston. Other professional sports teams in hockey, baseball, football, basketball, soccer, and other sports will likely be able to claim a similar deduction.

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