C-Corporations Are Not Required to Addback Federal Meals Deduction
For federal purposes, taxpayers are allowed a temporary 100% deduction for meals provided by a restaurant for calendar year 2021 and 2022.
It appears that North Carolina’s legislative intent was to decouple from this federal provision and require all taxpayers to addback the additional 50% deduction that was allowed by this temporary federal increase. Due to how the NC law was drafted, it appears that C-Corporations do not have to addback the additional 50% deduction that is temporarily allowed for federal purposes.
North Carolina specifically added G.S. 105-153.5(c2)(21) requiring such addback for 2021 and 2022 as part of their decoupling provisions signed into law in November 2021. This is the general statute that individuals, S-Corporations, partnerships and trusts all point to when determining their taxable income for North Carolina purposes.
However, it recently came to our attention that when North Carolina added this decoupling provision they did not add a similar provision to the general statutes under 105-130.5 which is where the modifications required when determining the taxable income of a C-Corporation are listed.
This has become a recent discussion within the NCACPA forum with conflicting interpretations and guidance being received from the NCDOR. This caused the NCACPA Advocate, Robert Broome, to raise the issue with the NCDOR and he received the following response:
“The Consolidated Appropriations Act 2021 (CAA) allows for a temporary 100% deduction in Code section 274(n)(2)(D) for business related expenses of food and beverages provided by a restaurant. As you know, this temporary deduction was designed to encourage these expenditures to help the restaurant industry hard hit from the pandemic.
For North Carolina C Corporation purposes only, North Carolina did not decouple from the federal Code provision. Accordingly, no addback is required for the temporary 100% deduction taken under Code section 274(n)(2)(D) on the North Carolina Form CD-405. We have spoken to our team to insure they provide a consistent and correct response.
The email also noted that one tax software vendor’s program may not be accurately computing this deduction. We appreciate NCACPA members bringing these issues to our attention as well, as the Department will work directly with the vendors to see if the problems can be corrected.”
Therefore, based on the way the law was written and the above interpretation provided by the NCDOR, C-Corporations are not required to include an addback related to any additional meals deductions they claimed for federal purposes during 2021 and 2022.
If a 2020 or 2021 NC return was filed with an addback, it may be beneficial to file an amended North Carolina Return to request a refund of the taxes paid related to the addback.
Please don’t hesitate to reach out to your BRC tax advisor if you have any questions on this issue.