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The Boston Bruins Victory in Tax Court

The Boston Bruins Victory in Tax Court

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On June 26, 2017 the U.S. Tax Court (“Tax Court”) ruled in Jacobs v. Commissioner, (148 T.C No. 24, T.C., No. 19009-15, 6/26/17), that the National Hockey League (“NHL”) franchise, Boston Bruins (“Bruins”) owner Jeremy M. Jacobs, was entitled to deduct the full amount paid for player and staff hotel meals while traveling to away games. This decision could potentially have a great impact on all industries that have employees where meals are deemed part of their work schedule when traveling.

Background

Under Internal Revenue Code (“IRC”) §274(n)(1), the general rule regarding deductibility of meals and entertainment expenses is as follows: “The amount allowable as a deduction under this chapter for any expense for food or beverages, and any item . . . entertainment, amusement, or recreation . . . shall not exceed 50 percent of the amount of such expense.”

One exception to the general rule is classification as a de minimis fringe benefit, which is defined by IRC §132(e) as “property or service, the value of which is so small as to make accounting for it unreasonable or administratively impracticable.”  Examples of de minimis benefits include personal use of a business cellphone or occasional office snacks.

Case Facts

Half of the Bruins games are played in cities other than Boston. The NHL requires their teams to be in the away city at least six hours before an away game starts. If the city is more than a 150 minute flight, the team is required to be there the day prior to game day.

In the case of the Bruins, the Tax Court felt that the team’s meal expenses met all of the requirements to be qualified as a de minimis fringe benefits as follows:

  • The meals must be provided in a nondiscriminatory manner in accordance with IRC §132(e)(2). Access to the meals must be available to each member of the group and not discriminatory in favor of highly compensated employees.

The Bruins travel to every away game with approximately 20 to 24 players, the head coach, assistant coaches, medical personnel, travel logistics managers, public relations/media personnel and other traveling hockey employees. All traveling hockey employees are required to attend pregame meals not only to eat, but to have various meetings and discussions relative to conducting team business.

  • The meals must be “furnished on your business premises” in accordance with Reg. §1.132-7(a)(2)(i) and “furnished for your convenience.”

This was a gray area for the Bruins, but they qualified based on the fact that use of hotel “meal rooms” was specifically outlined in their hotel contracts.  They were considered to be effectively leasing the meal rooms from the hotel.  As a professional sports team that spends half of its season on the road, contracted hotel space was deemed to be business premises.

  • The meals must be provided for a non-compensatory reason (not for the purpose of providing additional pay to the employee).

Meals that are furnished during working hours are furnished for your convenience if the nature of your business restricts an employee to a short meal period and the employee can’t be expected to eat elsewhere in such a short time.  In the case of the Bruins, they were provided meals during team meetings to discuss strategy with the coaching staff and review game film.  Their game-day schedule doesn’t allow enough time for players and staff to go elsewhere and eat.

Conclusion

Having a thorough understanding of these requirements lead the Boston Bruins to substantial tax savings.  However, this concept is not only relevant to professional hockey teams, or even just the sports industry. It can be expanded to include the entertainment industry (singers, actors, writers) as well as many professionals.

For further information about fringe benefits, please refer to Internal Revenue Service Publication 15-B..

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