In Uncategorized on 06/26/2017 at 16:20

No, I am not advising visitors to Yellowstone to ignore the warnings of the National Park Service Rangers, nor am I again making promises of home cooking to certain of my nearest and dearest; Bear BnB will always be open.

Rather, I am referring to Judge Ruwe’s direction to IRS in Jeremy M. Jacobs and Margaret J. Jacobs, 148 T. C. 24, filed 6/26/17.

Jer and Marg cause me to break yet again the Tenth Commandment. They own the Boston Bruins NHL team. How I covet the chance to own an NHL franchise! Alas, nevah hoppen, GI.

Anyway, Jer and Marg, zealous to provide for those who cause the Boston faithful to fill the seats at the TD Garden, contract with various caravanserais to provide bed, breakfast, snacks and pre-game chow-downs for the chaps in yellow and black, while the Bruins are on the road. Jer and Marg pick up the tab.

Jer’s and Marg’s corporate set-up is a bunch of pass-throughs, ending in a Sub S owned by Jer and Marg, who write off 100% of road room and board.

IRS says “no, 50% for meals.”

Judge Ruwe must be a die-hard hockey fan, because he does a play-by-play, with pictures, descriptions and accounts, of every away-day event, from boarding the plane the night before to the moment when the announcer at the away arena shouts “And now, the starting line-up for the Boston Bruins” accompanied by the “horrid shapes, and shrieks, and sights unholy” of the home team fans.

Bruins fans, read this. NHL fans, read this, as your faves might be doing likewise.

BTW, the meal tabs for the years at issue run around $150K. The Bruins like to eat.

IRS sends to the face-off circle at center a player wearing number 274(n)(1).

Jer and Marg send out D. Minimis, wearing number 132. D. wins the face-off, hits the open forward down the left-side boards, who shoots and scores, high on the glove side.

As Jer and Marg’s three attorneys on the forward line raise their sticks in the air and pound each other on the back, Judge Ruwe picks up his spilled popcorn and opines as follows.

“Section 274(a)(1)(A) disallows a deduction for certain meal and entertainment expenses otherwise deductible under section 162 unless the expenses are associated with the active conduct of the taxpayer’s trade or business.  Respondent does not challenge that the Bruins’ pregame meal expenses are associated with the active conduct of petitioners’ trade or business. If the deduction for meal expenses is not disallowed by section 274(a)(1)(A), then section 274(n) imposes a 50% limitation on the deduction for meal expenses unless an exception applies.” 148 T. C. 24, at pp. 14-15.

Whatever should we do without exceptions?

“Petitioners argue that the Bruins’ provision of pregame meals to traveling hockey employees at away city hotels qualifies for the de minimis fringe exception under section 274(n)(2)(B)….” 148 T. C. 24, at p. 15.

Section 132, the de minimis fringes to employees, requires that the benefits not be restricted to highly-compensated (over $110K annually for years at issue; check your local listings for current rate) types. OK, Jer and Marg let everyone on the road crew dine with the stars.

“Petitioners provided credible testimony that the pregame meals were made available to all Bruins’ traveling hockey employees–highly compensated, nonhighly compensated, players, and nonplayers–on substantially the same terms. Petitioners also provided testimony, which we find credible, that any discrepancy between anticipated and actual meal attendees was a function of cost reduction concerns and not discrimination.  We therefore hold that the Bruins’ provision of pregame meals to traveling hockey employees satisfies the nondiscriminatory manner requirement of section 132(e)(2).

“Employee meals provided in a nondiscriminatory manner constitute a de minimis fringe under section 132(e) if:  (1) the eating facility is owned or leased by the employer; (2) the facility is operated by the employer; (3) the facility is located on or near the business premises of the employer; (4) the meals furnished at the facility are provided during, or immediately before or after, the employee’s workday; and (5) the annual revenue derived from the facility normally equals or exceeds the direct operating costs of the facility (the revenue/operating cost test).” 148 T. C. 24, at p. 17.

While the eating room is not leased specifically by the Sub S, it is exclusive to the Bruins, and that’s good enough. The Bruins contract with the hotel to provide the goodies, and that satisfies Reg. 1.132-7(a)(2)(ii). Now the messhall has to be on “business premises,” but Tax Court takes a broad view; the Bruins’ business premises are not only in TD Garden, but on the road where they play half their games. Their NHL franchise requires them to play the other teams home-and-home, and Jer and Marg could lose the third-oldest NHL franchise if they don’t (and the City of Boston would go into perpetual mourning). So the Bruins business premises is “where the boys are.” Check the caselaw Judge Ruwe cites, if your clients are running field kitchens.

IRS, scrapping against the Bruins like the old Broad Street Bullies, claim that the business is on the ice, not the hotel room. But Judge Ruwe says health and rest are essential to a winning team.

And it’s quality time, not just hours. “Furthermore, respondent provides no precedent to support the argument that business premises are limited to the location where the most qualitatively significant business activity occurs. We also disagree with respondent’s argument that away city hotels cannot constitute the Bruins’ business premises because the team spends quantitatively less time at each individual away city hotel when compared to the team’s time spent at its Boston facilities.  Although the Bruins do spend quantitatively less time at each individual away city hotel than they do in Boston, this goes to the unique nature of a professional hockey team that is required to play one-half of its games away from home.  It is therefore illogical for respondent to ignore the nature of the Bruins’ business and the NHL and analyze the amount of time spent at each away city hotel in isolation.  Respondent also provides no precedent to support the proposition that a quantitative comparison of time is critical to determining business premises.” 148 T. C. 24, at p. 28 (Citations omitted).

The meals are furnished near worktime and for noncompensatory reasons. The food is specially designed to nourish the players of a rough, physical game, and the off-ice people are hardworking and can’t hunt up the local Burger King in each city.

The Section 274(c)(8) entertainment issue goes away, because the meals are de minimis.

Now the fans can file out of the TD Arena, as the Bruins have won another one.


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