[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.162-17]

[Page 786-789]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.162-17  Reporting and substantiation of certain business expenses 
of employees.

    (a) Introductory. The purpose of the regulations in this section is 
to provide rules for the reporting of information on income tax returns 
by taxpayers who pay or incur ordinary and necessary business expenses 
in connection with the performance of services as an employee and to 
furnish guidance as to the type of records which will be useful in 
compiling such information and in its substantiation, if required. The 
rules prescribed in this section do not apply to expenses paid or 
incurred for incidentals, such as office supplies for the employer or 
local transportation in connection with an errand. Employees incurring 
such incidental expenses are not required to provide substantiation for 
such amounts. The term ``ordinary and necessary business expenses'' 
means only those expenses which are ordinary and necessary in the 
conduct of the taxpayer's business and are directly attributable to such 
business. The term does not include nondeductible personal, living or 
family expenses.

[[Page 787]]

    (b) Expenses for which the employee is required to account to his 
employer--(1) Reimbursements equal to expenses. The employee need not 
report on his tax return (either itemized or in total amount) expenses 
for travel, transportation, entertainment, and similar purposes paid or 
incurred by him solely for the benefit of his employer for which he is 
required to account and does account to his employer and which are 
charged directly or indirectly to the employer (for example, through 
credit cards) or for which the employee is paid through advances, 
reimbursements, or otherwise, provided the total amount of such 
advances, reimbursements, and charges is equal to such expenses. In such 
a case the taxpayer need only state in his return that the total of 
amounts charged directly or indirectly to his employer through credit 
cards or otherwise and received from the employer as advances or 
reimbursements did not exceed the ordinary and necessary business 
expenses paid or incurred by the employee.
    (2) Reimbursements in excess of expenses. In case the total of 
amounts charged directly or indirectly to the employer and received from 
the employer as advances, reimbursements, or otherwise, exceeds the 
ordinary and necessary business expenses paid or incurred by the 
employee and the employee is required to and does account to his 
employer for such expenses, the taxpayer must include such excess in 
income and state on his return that he has done so.
    (3) Expenses in excess of reimbursements. If the employee's ordinary 
and necessary business expenses exceed the total of the amounts charged 
directly or indirectly to the employer and received from the employer as 
advances, reimbursements, or otherwise, and the employee is required to 
and does account to his employer for such expenses, the taxpayer may 
make the statement in his return required by subparagraph (1) of this 
paragraph unless he wishes to claim a deduction for such excess. If, 
however, he wishes to secure a deduction for such excess, he must submit 
a statement showing the following information as part of his tax return:
    (i) The total of any charges paid or borne by the employer and of 
any other amounts received from the employer for payment of expenses 
whether by means of advances, reimbursements or otherwise; and
    (ii) The nature of his occupation, the number of days away from home 
on business, and 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 such broad categories as transportation, meals and lodging 
while away from home overnight, entertainment expenses, and other 
business expenses.
    (4) To ``account'' to his employer as used in this section means to 
submit an expense account or other required written statement to the 
employer showing the business nature and the amount of all the 
employee's expenses (including those charged directly or indirectly to 
the employer through credit cards or otherwise) broken down into such 
broad categories as transportation, meals and lodging while away from 
home overnight, entertainment expenses, and other business expenses. For 
this purpose, the Commissioner in his discretion may approve reasonable 
business practices under which mileage, per diem in lieu of subsistence, 
and similar allowances providing for ordinary and necessary business 
expenses in accordance with a fixed scale may be regarded as equivalent 
to an accounting to the employer.
    (c) Expenses for which the employee is not required to account to 
his employer. If the employee is not required to account to his employer 
for his ordinary and necessary business expenses, e.g., travel, 
transportation, entertainment, and similar items, or, though required, 
fails to account for such expenses, he must submit, as a part of his tax 
return, a statement showing the following information:
    (1) The total of all amounts received as advances or reimbursements 
from his employer in connection with the ordinary and necessary business 
expenses of the employee, including amounts charged directly or 
indirectly to the employer through credit cards or otherwise; and

[[Page 788]]

    (2) The nature of his occupation, the number of days away from home 
on business, and 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 such broad categories as transportation, meals and lodging 
while away from home overnight, entertainment expenses, and other 
business expenses.
    (d) Substantiation of items of expense. (1) Although the 
Commissioner may require any taxpayer to substantiate such information 
concerning expense accounts as may appear to be pertinent in determining 
tax liability, taxpayers ordinarily will not be called upon to 
substantiate expense account information except those in the following 
categories:
    (i) A taxpayer who is not required to account to his employer, or 
who does not account;
    (ii) A taxpayer whose expenses exceed the total of amounts charged 
to his employer and amounts received through advances, reimbursements or 
otherwise and who claims a deduction on his return for such excess;
    (iii) A taxpayer who is related to his employer within the meaning 
of section 267(b); and
    (iv) Other taxpayers in cases where it is determined that the 
accounting procedures used by the employer for the reporting and 
substantiation of expenses by employees are not adequate.
    (2) The Code contemplates that taxpayers keep such records as will 
be sufficient to enable the Commissioner to correctly determine income 
tax liability. Accordingly, it is to the advantage of taxpayers who may 
be called upon to substantiate expense account information to maintain 
as adequate and detailed records of travel, transportation, 
entertainment, and similar business expenses as practical since the 
burden of proof is upon the taxpayer to show that such expenses were not 
only paid or incurred but also that they constitute ordinary and 
necessary business expenses. One method for substantiating expenses 
incurred by an employee in connection with his employment is through the 
preparation of a daily diary or record of expenditures, maintained in 
sufficient detail to enable him to readily identify the amount and 
nature of any expenditure, and the preservation of supporting documents, 
especially in connection with large or exceptional expenditures. 
Nevertheless, it is recognized that by reason of the nature of certain 
expenses or the circumstances under which they are incurred, it is often 
difficult for an employee to maintain detailed records or to preserve 
supporting documents for all his expenses. Detailed records of small 
expenditures incurred in traveling or for transportation, as for 
example, tips, will not be required.
    (3) Where records are incomplete or documentary proof is 
unavailable, it may be possible to establish the amount of the 
expenditures by approximations based upon reliable secondary sources of 
information and collateral evidence. For example, in connection with an 
item of traveling expense a taxpayer might establish that he was in a 
travel status a certain number of days but that it was impracticable for 
him to establish the details of all his various items of travel expense. 
In such a case rail fares or plane fares can usually be ascertained with 
exactness and automobile costs approximated on the basis of mileage 
covered. A reasonable approximation of meals and lodging might be based 
upon receipted hotel bills or upon average daily rates for such 
accommodations and meals prevailing in the particular community for 
comparable accommodations. Since detailed records of incidental items 
are not required, deductions for these items may be based upon a 
reasonable approximation. In cases where a taxpayer is called upon to 
substantiate expense account information, the burden is on the taxpayer 
to establish that the amounts claimed as a deduction are reasonably 
accurate and constitute ordinary and necessary business expenses paid or 
incurred by him in connection with his trade or business. In connection 
with the determination of factual matters of this type, due 
consideration will be given to the reasonableness of the stated 
expenditures for the claimed purposes in relation to the taxpayer's 
circumstances (such as his income and the nature of his occupation), to 
the reliability and accuracy of records in

[[Page 789]]

connection with other items more readily lending themselves to detailed 
recordkeeping, and to all of the facts and circumstances in the 
particular case.
    (e) Applicability. (1) Except as provided in subparagraph (2) of 
this paragraph, the provisions of the regulations in this section are 
supplemental to existing regulations relating to information required to 
be submitted with income tax returns, and shall be applicable with 
respect to taxable years beginning after December 31, 1957, 
notwithstanding any existing regulation to the contrary.
    (2) With respect to taxable years ending after December 31, 1962, 
but only in respect of periods after such date, the provisions of the 
regulations in this section are superseded by the regulations under 
section 274(d) to the extent inconsistent therewith. See Sec. 1.274-5.
    (3) For taxable years beginning on or after January 1, 1989, the 
provisions of this section are superseded by the regulations under 
section 62(c) to the extent this section is inconsistent with those 
regulations. See Sec. 1.62-2.

[T.D. 6500, 25 FR 11402, Nov. 26, 1960, as amended by T.D. 6630, 27 FR 
12935, Dec. 29, 1962; T.D. 8276, 54 FR 51026, Dec. 12, 1989; T.D. 8324, 
55 FR 51695, Dec. 17, 1990]