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If section 119 provides for such an allowance, section
1.119-1(a)(2)(ii)(e), Income Tax Regs., allows petitioners to
deduct 100 percent of the costs incurred to provide the meals.7
Boyd Gaming Corp v. Commissioner, 106 T.C. 343 (1996); see also
sec. 274(n)(2)(B); sec. 1.132-7(a)(2), Income Tax Regs. If
section 119 does not provide for such an allowance, petitioners'
deductions for the meals are limited by section 274(n)(1) to 80
percent of the cost of the meals.
Petitioners argue that section 119 allows each of
substantially all of the employees to exclude the value of the
meals from gross income. According to petitioners, they had
substantial noncompensatory business reasons for providing meals
to each of substantially all of their employees, and petitioners
determined reasonably that the meals were excludable from each
employee's gross income under section 119. Respondent counters
that petitioners cannot determine the number of meals excludable
from gross income under section 119, which is a prerequisite to
the application of section 1.132-7(a)(2), Income Tax Regs.,
because petitioners failed to keep the required documentation to
7 Sec. 1.119-1(a)(2)(ii)(e), Income Tax Regs., provides:
If the employer furnishes meals to employees at a place
of business and the reason for furnishing the meals to
each of substantially all of the employees who are
furnished the meals is a substantial noncompensatory
business reason of the employer, the meals furnished to
each other employee will also be regarded as furnished
for a substantial noncompensatory business reason of
the employer.
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