Jacobs v. Comm'r
148 T.C. No. 24, 2017 U.S. Tax Ct. LEXIS 26 (2017)
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Rule of Law:
Meals provided by an employer to its employees at an off-site location, such as a hotel, can qualify as a fully deductible de minimis fringe benefit under I.R.C. § 274(n)(2)(B) if the location functionally serves as the employer's business premises and the meals are provided for substantial noncompensatory business reasons.
Facts:
- Jeremy and Margaret Jacobs own the Boston Bruins, a National Hockey League (NHL) franchise.
- The Bruins are required by the NHL to play approximately half of their games in other cities ('away games').
- When traveling for away games, the Bruins contract with hotels for lodging and the use of private banquet or conference rooms for meals.
- The Bruins provide pregame meals with specific nutritional guidelines in these private rooms to all traveling players and personnel.
- Attendance at the pregame breakfast and lunch is mandatory for all players.
- During these meals, the team conducts significant business, including one-on-one and group meetings with coaches, strategy discussions, game film review, and meetings with public relations staff.
- The away-city hotels are also used for other team-related activities, including medical treatments, physical therapy, and strength training.
Procedural Posture:
- Through their S corporation, Jeremy and Margaret Jacobs claimed 100% deductions for meal expenses for the Boston Bruins on their 2009 and 2010 Federal income tax returns.
- The Commissioner of Internal Revenue disallowed 50% of the deductions for meals provided to the team in away cities, pursuant to I.R.C. § 274(n)(1).
- The Commissioner issued a notice of deficiency to the Jacobs for the tax years 2009 and 2010.
- The Jacobs timely filed a petition with the United States Tax Court to dispute the Commissioner's determination.
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Issue:
Does the cost of pregame meals provided by the Boston Bruins to its players and personnel at away-city hotels qualify as a de minimis fringe benefit under I.R.C. § 274(n)(2)(B), thereby exempting the expense from the 50% deduction limitation of I.R.C. § 274(n)(1)?
Opinions:
Majority - Ruwe
Yes. The cost of pregame meals qualifies as a de minimis fringe benefit, exempting it from the 50% deduction limitation. The court found that the meals satisfied the five requirements for an employer-operated eating facility under I.R.C. § 132(e). First, the team's contracts with the hotels were substantively leases for the meal rooms. Second, by dictating menus and meal arrangements, the team 'operated' the facility as defined by regulation. Third, and most critically, the away-city hotels constituted the Bruins' 'business premises' based on a functional test; they were indispensable locations where significant business, essential for game preparation, was conducted. Fourth, the meals were furnished during the employees' workday. Finally, the meals satisfied the revenue/operating cost test because they were provided for the 'convenience of the employer' under § 119, as they served substantial noncompensatory business purposes like ensuring nutrition and maximizing limited preparation time.
Analysis:
This decision significantly interprets the term 'business premises' for businesses with a mobile workforce, especially professional sports teams. It establishes a functional rather than a strictly geographical test, allowing temporary locations like hotels to qualify as business premises if substantial work is conducted there. This ruling broadens the applicability of the fully deductible 'de minimis fringe' benefit for employer-provided meals, creating a precedent for other traveling businesses to argue for full deductibility of meals essential to their operations. The case signals a willingness by the court to look at the unique nature of a business when applying tax code provisions.
