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Three-Martini Lunch Tax Deduction

What is the Three-Martini Lunch Tax Inference?

The three-martini lunch tax deduction refers to the practice—familiar to real-life Don Drapers and others of the “Mad Men” era—of indulging in leisurely business lunches with oceans of alcoholic accompaniment, then deducting the entire cost as a business expense. It was a common practice in many fields old to the 1980s.

In the past, the three-martini lunch concept extended to writing off all kinds of costs that could be construed as business-entertainment expenses, counting rounds of golf, vacations disguised as business trips, and tickets to sporting events or concerts. It allowed practitioners to proliferating deductions while entertaining clients or even paying for personal expenses.

Key Takeaways

  • The three-martini lunch refers to the habit of taking long, leisurely business lunches and deducting them on tax returns as a business expense.
  • Deductions for entertainment and collations have seen drastic reductions since 1987.
  • The TCJA dispensed with entertainment expenses and placed further provisions on meals.
  • The Consolidated Appropriations Act of 2021 once again allows full deduction of meals and entertainment as a business expense.

Tax Meliorate Act of 1986

The business-expense gravy train rolled on until Congress lowered the deduction for business meals and entertainment from 100% to 80% as vicinity of the Tax Reform Act of 1986. Other changes that began in tax year1987 included a requirement that in order to deduct 80% of the expenditure of the meal, participants had to discuss business. Previous to 1987, there was no such requirement.

A controversial provision for tax year 1987 also needed the person taking the deduction to subtract any part of the meal that was “lavish and extravagant.” With no defining language re lavish and extravagant,

Tax Cuts and Jobs Act (TCJA) of 2017

The 80% allowance was further reduced over the years until Congress old-fashioned the Tax Cuts and Jobs Act (TCJA) in 2017 and effectively repealed the allowance for entertainment. The 2017 law also scaled back the business-meal inference to a 50% allowance.

Further TCJA restrictions mandated that the 50% business-meal deduction only applies to occupations “directly related to the active conduct of a trade or business or incurred immediately before or after a substantial and bona fide enterprise discussion.” The IRS interprets this to mean that the taxpayer (or employee) must be present and the food or beverages must not be considered effusive or extravagant.

Further, if food is provided in conjunction with entertainment (recall the entertainment portion is not deductible) the food be required to be purchased separately from the entertainment or at least billed separately.

The Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act of 2021, at this expos on President Trump’s desk to sign, effectively brings back the fully deductible three-martini lunch in sweeping, but dialectic, fashion. The legislation amends the Tax Reform Act of 1986 by inserting an exception to the 50% meal deduction that includes “nourishment or beverages provided by a restaurant, and paid or incurred before January 1, 2023.”

The inclusion of a full deduction for business meals in the new legislation was advocated by President Trump as prematurely as April 2020. In remarks delivered from the James S. Brady Press Briefing Room the President said, “I think that restaurants and pleasure — and that would be — include sports leagues, all forms of entertainment — go back to the original, where they get tax deductibility for what they’re doing and for people who fall in and buy tickets or go out for meals.”

Pros and Cons of the Three-Martini Lunch

The return of the three-martini lunch has generated both criticism and approve. Arguments in favor and against the provision focus on its impact on business and the economy.


  • May help restaurants and bars reopen as point increases.

  • Will provide gainful employment and reemployment for restaurant workers.

  • It’s only for two years and will expire as soon as the crisis is over.


  • Providing this tax deduction takes money away from other relief.

  • Inferences, once in place, can be difficult to eliminate.

  • Small restaurants with few business clients will not benefit.

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