Expense-Reporting Programs with Electronic Credit Card Receipts 

G  uses a business expense reimbursement program under which it reimburses employees for all reasonable and necessary travel and entertainment (T&E) expenses. It provides appropriate employees with a charge card from a credit card company. Employees may pay for business T&E by using the credit card or, alternatively, their own money.

G proposes to implement a program under which it will receive electronic receipts directly from the credit card company, for two types of expenses: (1) those that are clear on their face (e.g., an airline ticket or car rental charge); or (2) those for which an itemized breakdown is available electronically from the credit card company. It will not require its employees to submit paper receipts for these two types of expenses.

G will continue to require a paper receipt (containing the proper level of detail) for any expenses over $75 that do not meet the above criteria. For example, an electronic hotel receipt that fails to break out lodging, meals, entertainment, green fees and spa charges would inadequately describe the expense; thus, a paper receipt with such detail would be required. In addition, G will continue to require paper receipts for all expenses employees pay with their own funds.

G also proposes to pay the credit card company directly for all business expenses that the employees charge to the card. After receiving the expense data electronically from the credit card company, G will transfer it into a system employees can access to create expense reports. For each charge, the data would include the: (1) date; (2) amount; (3) merchants name; and (4) merchants location. To create an expense report, the employee would be required to add:

1. The company cost center from which the expense is paid.

2. The general ledger account number properly classifying the expense as T&E.

3. A description of the expense.

4. An itemization of any expense in addition to lodging incurred at a hotel. Employees would also be required to designate any personal expenses as such.

Once the expense report is completed and approved, G would pay the credit card company for all business expenses listed on the report. Employees would be required to pay the credit card company for any personal charges.

Gs use and retention of electronic records under the program would continue to meet Rev. Proc. 98-25s requirements.

Analysis

Under Regs. Sec. 1.274-5(c)(2)(iii), documentary evidence is required for any expenditure for lodging while traveling away from home and for any other expenditure of $75 or more (except for transportation charges, if documentary evidence is not readily available). Acceptable documentary evidence includes receipts, paid bills or similar evidence sufficient to support an expenditure. Ordinarily, documentary evidence would be adequate if it includes sufficient information to establish the amount, date, place and essential character of the expenditure. For example, a hotel receipt is sufficient to support expenditures for business travel if it contains the name, location, date and separate amounts for charges such as lodging, meals and telephone.

Currently, Gs employees have to submit documentary evidence for all expenses over $75. Under its proposed program, electronic receipts forwarded to G directly from the credit card company for certain expenses would include information sufficient to establish the amount, date, place and essential character of the expenditure and, thus, would also qualify as receipts, paid bills, or similar evidence for purposes of Regs. Sec. 1.274-5(c)(2)(iii)s documentary evidence requirements. For any expenses more than $75 for which an itemized breakdown is not available via electronic receipt (and which are not clear on their face), G will continue to require a paper receipt from employees. In addition, it would continue to require paper receipts for all out-of-pocket expenses.

All documentary evidence submitted to G, whether paper or electronic, would be sufficient to support an expenditure. Thus, both the current and proposed programs for reimbursing T&E expenses require employees to make an adequate accounting to the employer by submitting adequate records that would satisfy the substantiation requirement of Regs. Sec. 1.162-2(e).

Gs program for reimbursing employees for T&E expenses otherwise meets the business connection, substantiation and return-of-excess requirements of Regs. Sec. 1.62-2(c) for an accountable plan under Sec. 62(c). Expense reporting with either electronic or paper receipts satisfies both the adequate records and accounting requirements under Temp. Regs. Secs. 1.274-5T(c)(2)(i) and 5T(f). Thus, the reporting procedures for reimbursing employees for their T&E expenses satisfy the substantiation requirements of Regs. Sec. 1.62-2(c).

IRS Letter Ruling 200304002 (1/24/03)

REFLECTIONS: In several prior rulings, the IRS approved similar reimbursement arrangements based on electronic-reporting procedures (e.g., Letter Rulings 200235006 (8/30/02) and 200103015 (1/22/01)). These programs eliminate the employees requirement to submit paper receipts and records to substantiate charges on a charge card if the nature of the charge is clear on its face or a detailed breakdown is available from the credit card company.