Rev. Rul. 59-244

Advice has been requested as to the procedure to be followed by an employee in reporting expenses directly charged to, and paid by, his employer through the credit card system, when the employee is required to account to his employer and wants to claim a deduction on his Federal income tax return for business expenses incurred in excess of reimbursements.

During the taxable year 1958, the taxpayer paid certain deductible business expenses in excess of the allowances which he received for such purposes from his employer. During the same period, certain other business expenses were directly charged to and paid by his employer through the credit card system. The employee was required to account and did account to his employer for both types of expenses.

Section 162(a) of the Internal Revenue Code of 1954 provides, in part, that there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.

Section 1.162-17(b)(3) of the Income Tax Regulations provides the rules governing the information required to be submitted as part of the income tax return of an employee who incurs ondinary and necessary business expenses in excess of reimbursements, and who is required to and does account to his employer for such expenses. One of the rules prescribed therein is that if such an employee wishes to secure a deduction for such excess expenses, he must submit a statement showing (a) the total of all amounts charged directly or indirectly to his employer through credit cards or otherwise, and of all other amounts received from the employer as advances or reimbursements for payment of expenses; and (b) the total amount of ordinary and necessary business expenses paid or incurred by him, including those charged directly or indirectly to the employer through credit cards or otherwise, broken down into certain broad categories.

Inasmuch as section 1.162-17 of the regulations, which was approved in Treasury Decision 6306, C.B. 1958-2, 64, was not adopted until August 27, 1958, employees claiming a deduction on their income tax return for the taxable year 1958 for business expenses in excess of reimbursements may submit a reasonable estimate of expenses incurred by them which were charged directly or indirectly to their employers through the credit card system or otherwise.

However, all employees claiming a deduction for business expenses in excess of reimbursements on their income tax returns for the taxable year 1959 and subsequent years must report the actual amount of expenses charged directly or indirectly to their employers through the credit card system or otherwise. For this purpose, employees should personally maintain a record of expenses charged to their employers since employers are not required to furnish employees such records.

¹ Based on Technical Information Release 134, dated February 24 , 1959.