Private Letter Ruling 199805007

Code Secs. 61, 102, 6041

* Sec. 61 Issues: Gross income v. not gross income -- Bargain purchase; Gift.

* Sec. 102 Issues: Gifts and inheritances -- Definition of gift, bequest, devise, or inheritance.

* Sec. 6041 Issues: Information at source.

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This is in response to your request dated April 9, 1997, for a ruling

that certain travel itinerary and receipt documents transmitted via

electronic mail ("email") or facsimile transmission ("fax") qualify as

"documentary evidence" under section 274(d) of the Internal Revenue Code

and section 1.274-5T(c)(2)(iii) of the Temporary Income Tax Regulations.

FACTS

A is a large corporation that reimburses employees for business travel

expenses pursuant to a travel policy. To receive reimbursement for travel

expenses, A's employees must complete an expense report accompanied by a

receipt for any expense exceeding X.

A's employees make travel arrangements through B. B uses a procedure

for making air travel arrangements on airlines that offer "ticketless

travel." When an employee of A makes an air travel reservation with an

agent of B, the agent enters the reservation into B's customer reservation

system, generates an electronic record of the reservation that will be

stored in the airline's database, confirms the flight with the employee,

and collects payment by cash, check, or credit card. B provides the

employee with an itinerary and receipt document.

The itinerary and receipt contains the following information: name of

employee, date of issue, issuing agency or airline, ticket number, flight

itinerary (airline name, flight number, date of flight, departure and

arrival time, origin and destination airports, reservation status code,

and endorsement restrictions for each flight segment), and fare and

payment information (amount of fare, tax, total, form of payment, name of

credit card and name of credit card holder if applicable).

B delivers the itinerary and receipt document to A's employee by email

or fax. The employee does not receive a paper ticket or paper receipt.

When the employee submits to A an expense report for the travel, the

employee attaches to the expense report a paper copy of the itinerary and

receipt document. If the itinerary and receipt was faxed, the employee

attaches the fax copy. If the itinerary and receipt was sent via email,

the employee attaches a copy printed locally.

LAW

Section 62(a)(2)(A) allows an employee, in determining adjusted gross

income, a deduction for the expenses allowed by Part VI (section 161 and

following), subchapter B, chapter 1 of the Code, paid or incurred by the

employee in connection with the performance of services as an employee

under a reimbursement or other expense allowance arrangement with a payor.

Section 1.62-2(c)(1) provides that reimbursements by an employer to an

employee for business expenses paid or incurred by the employee are paid

under an "accountable plan" if the reimbursement arrangement meets the

requirements of business purpose, substantiation, and returning amounts in

excess of expenses. Amounts failing to meet these requirements are treated

as paid under a nonaccountable plan. Section 1.62-2(c)(3).

An employee may satisfy the substantiation requirement of a section

1.62-2(c)(1) accountable plan by substantiating the expenses to the

employer in accordance with section 274(d) and the regulations thereunder.

Section 1.62-2(e)(2).

Section 162(a) allows a deduction for all the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade

or business.

Section 274(d) disallows a trade or business deduction under section

162(a) for any traveling expense, including air fare, unless the taxpayer

substantiates the expense by adequate records or other sufficient

evidence. Under section 1.274-5T(c), "adequate records" for an expenditure

combine (1) the record of the expenses (account book, diary, log,

statement of expense, trip sheets, or other similar record), and (2)

documentary evidence (such as receipts or paid bills). Together, these

records must establish the elements of amount, time, place, and business

purpose for each travel expenditure.

Section 1.274-5T(c)(2)(iii) generally requires documentary evidence to

substantiate (1) any expenditure for lodging and (2) any other expenditure

of $75 or more ($25 for expenses paid or incurred before October 1, 1995).

Documentary evidence will be considered adequate to support an expenditure

if it includes sufficient information to establish the amount, date,

place, and essential character of an expenditure.

ANALYSIS

Section 1.274-5T(c)(2)(iii) requires that travel expenses, including

air fare, in the amount of $75 or more must be substantiated by

documentary evidence. The essential requirement of documentary evidence of

a travel expense, including air fare, is that it must, in conjunction with

the expense report, establish the amount, date, place, and business

character of the expenditure. The regulations do not specify the precise

form of the documentary evidence. There is no requirement that documentary

evidence must consist of "original" documents and no prohibition against

documentary evidence in the form of facsimile or xerographic copies. Rev.

Proc. 91-59, 1991-2 C.B. 841, provides procedures for maintaining tax

records in electronic form, including (pursuant to section 3.08)

documentation required by section 274(d).

HOLDING

We conclude that the itinerary and receipt document provided by B to an

employee of A contains the amount, date, place and essential character of

an expenditure for air fare, and, as to that expenditure, constitutes

documentary evidence adequate to support an expenditure under section

1.274-5T(c)(2)(iii).

A copy of this letter ruling must be attached to any income tax return

to which it is relevant. We enclose a copy for that purpose.

Except as specifically provided in this letter, we neither express nor

imply any opinion concerning the tax consequences of any aspect of any

transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer(s) requesting it. Section

6110(j)(3) of the Internal Revenue Code provides that it may not be used

or cited as precedent.

Sincerely,

Assistant Chief Counsel

(Income Tax & Accounting)

By ____

George Baker

Assistant to the Chief, Branch 2

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