If you go to a Dutch-treat lunch with a colleague or have a member lunch at your monthly chamber of commerce meeting, you face two opposing tax laws:

The law that denies your deductions for personal living expenses (food)1

The law that allows business meals as tax deductions2

Tax professionals know this conflict as the “Sutter rule,” named after Dr. Sutter, who had a bad experience with the Tax Court.3 When the IRS and/or the courts invoke the Sutter rule, you lose your business meal deductions to the extent they don’t exceed your personal meal costs.

Example. Your Dutch-treat meal deductions for business entertainment for the year are $12,000. Had you had the meals at home, your cost would have been $2,000. Under the Sutter rule, the IRS could reduce your meal deductions by $2,000, to $10,000—the business amount in ... Log in to view full article.