IRS Letter Ruling 9805007
The problem. For the past few years most airlines have offered passengers the option of “ticketless travel.” A few airlines have switched completely to this arrangement. The concept is simple. A passenger makes a reservation and the airline or travel agency makes an electronic record of the reservation that is stored in the airline’s computer system. The airline or travel agency collects the fare and instead of providing the passenger with a ticket issues an itinerary of the travel plus a receipt document. Often, the receipt is incorporated into the itinerary. The itinerary and receipt contain the following information: name of passenger; flight itinerary (airline name, flight number, date of flight, departure and arrival time, origin and destination airports); amount of air fare and taxes; form of payment; name of credit card and credit card holder for credit card charges. The itinerary and receipt usually are sent to the passenger by email or fax. The passenger does not receive a paper ticket or paper receipt.
Let’s assume that your pastor travels by air to a conference or seminar in another state using ticketless travel. Let’s further assume that your church has an “accountable” business expense reimbursement arrangement. Will the itinerary and receipt issued by the travel agent or airline be an adequate substantiation of your pastor’s air fare? Or, must the pastor produce additional evidence? Given the growing popularity of ticketless travel, it is important for church treasurers to be familiar with the answers to these questions. The IRS addressed this issue in a recent ruling.
What the IRS said. The IRS noted that the tax code denies a business expense deduction for any travel expense (including air fare) unless the taxpayer substantiates the expense by adequate records or other sufficient evidence. These records must substantiate the amount, time, place, and business purpose of each travel expense. In addition, receipts are required to substantiate the amount of any expense of $75 or more. Does an itinerary and receipt issued by a travel agent or airline for a ticketless trip satisfy these requirements? Yes, ruled the IRS. It noted that the tax code “does not specify the precise form of the documentary evidence” and “there is no requirement that documentary evidence must consist of original documents and no prohibition against documentary evidence in the form of” faxes or email.
The IRS concluded that an itinerary and receipt document provided to a passenger constitutes sufficient substantiation of a business travel expense under an accountable reimbursement arrangement–so long as the document “contains the amount, date, place and essential character” of the expense. Of course, an itinerary and receipt will seldom document the business nature of a trip, and so this must be proven in other ways in order to satisfy the requirements of an accountable reimbursement.
Key point. The good news is that the IRS is not requiring that ticketless travelers produce an actual air fare receipt or ticket in order to substantiate their air fare under an accountable reimbursement arrangement.
Example. Rev. G travels by air to a conference in another state, using ticketless travel. His travel agent faxes him an itinerary and receipt document confirming the price of the ticket along with the dates and destination of travel. Assuming that the church has adopted an accountable expense reimbursement arrangement, the itinerary and receipt document will provide adequate substantiation of the amount, place, and date of travel. However, Rev. G still will need to substantiate the business purpose of the trip in order to satisfy the requirements of an accountable reimbursement arrangement. This can be done in a number of ways. For example, Rev. G could provide the church treasurer with a copy of his conference registration form or a copy of a conference workbook or agenda that was distributed at the conference.
