Fax and E-mail qualify as "documentary evidence" for Sec. 274.

On Jan. 30, 1998, the IRS issued Letter Ruling 9805007, which held that Regs. Sec. 1.274-5T(c)(2)(iii) does not require original documents to satisfy its requirement for documentary evidence to substantiate travel expenses.

The taxpayer in the ruling was a large corporation that reimbursed its employees for their business travel expenses pursuant to a travel policy that required a completed expense report accompanied by a receipt for expenditures exceeding a certain amount. The travel agent used for these arrangements booked air travel on airlines offering "ticketless travel." When a reservation was made, the travel agent generated an electronic record of the reservation stored in the airline's database, collected payment by cash, check or credit card, and provided the employee with an itinerary and receipt document. The itinerary and receipt contained the employee's name, date of issue, issuing agency or airline, ticket number, flight itinerary (including airline, flight number and flight information) and fare and payment information (including amount, tax, form of payment, credit card, etc.). This itinerary and receipt were sent via e-mail or fax to the employee; no paper ticket or paper receipt was created. The employee submitting an expense report attached to the report a paper copy of the itinerary and receipt document, either the faxed copy or a copy printed from the e-mail.

An employee reimbursed by an employer for deductible expenses incurred as an employee can exclude such reimbursement in determining adjusted gross income if reimbursed under an expense allowance arrangement. Such an arrangement is an accountable plan if the employer's reimbursement arrangement satisfies the requirements of business purpose, substantiation and the requirement to return amounts in excess of expenses. Substantiation requirements for an accountable plan are frequently satisfied by compliance with the requirements set forth in Sec. 274 and its regulations.

Sec. 274 disallows a deduction for travel expenses (including airfare), unless the taxpayer substantiates the expense by adequate records or other sufficient evidence. "Adequate records" consist of both a record of the expense (e.g., an account book, statement of expense or similar record) and documentary evidence (e.g., receipts or paid bills). Taken together, these records must establish the amount of the expense as well as the time, place and business purpose for each travel expense. Specifically, Temp. Regs. Sec. 1.274-5T(c)(2)(iii) requires substantiating documentary evidence for any expenditure for lodging and any expenditure of $75 or greater. Ordinarily, documentary evidence will be considered adequate to support an expenditure if it includes sufficient information to establish the amount, date, place and the essential character of the expenditure.

In Letter Ruling 9805007, the Service concluded that the itinerary and receipt document provided by the travel agent that contained the amount, date, place and essential character of the travel expenses, whether supplied via e-mail or facsimile, was documentary evidence sufficient to satisfy Temp. Regs. Sec. 1.274-5T(c)(2)(iii).

The IRS further noted that the essential requirement of documentary evidence for a travel expense such as air fare must establish the amount, date, place and business character of the expenditure; no precise form of documentary evidence is specified in the regulations. In other words, there is no requirement that documentary evidence consist of "original" documents, nor is there a prohibition against the use of facsimile or photocopies. See Rev. Proc. 91-59 for procedures for maintaining tax records (including the documentation required by Sec. 274(d)) in electronic form.