It's fine for business associates to dine or lunch together. Indeed, if business is discussed before, during, or after the lunch (something which doesn't impose a hardship on most businesspeople), 50% of the cost of the lunch is deductible. It sounds good. It is good.
But don't do it too often. Courts have regularly held that there is no deduction where meals with business associates are frequent and reciprocal. This principle was upheld again in a recent Tax Court case.
Two doctors of different specialties shared office space. They treated some patients in common and one referred patients to the other. These discussions often took place over lunch, in which the two doctors engaged often. They alternated picking up the check.
The IRS disallowed the deductions for the lunches which one of the doctors took and this disallowance was affirmed by the Tax Court. The principle was as stated - the two doctors were allowed to have lunch together to discuss business, but they did it too often. The court found that the lunches weren't integral to the doctor's business and weren't clearly linked to the production of income. Their business relationship was close and well established. In addition, the reciprocal treating on such a regular basis was construed to mean that each only paid for his or her own meals and that the arrangement effectively represented a cost sharing arrangement.