Rev. Rul. 2003-106 - ISSUE - Whether an employer’s expense reimbursement arrangement is an accountable plan under § 62

Sep 22, 2026

Rev. Rul. 2003-106 addresses whether an employer’s expense reimbursement arrangement for deductible travel and entertainment expenses qualifies as an accountable plan under § 62(a)(2)(A) and (c). The ruling describes an arrangement requiring employees to substantiate deductible charges using expense reports and, in most cases, electronic receipts provided through business credit cards. It explains treatment of deductible vs. nondeductible expenses, employee obligations to separate business and personal items, database transfer and electronic receipt integrity, and when paper receipts and reports remain required.

LanguageEnglish

CategoryForms

FormatPDF

Pages7

Reading Time3 min

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ISSUE

FACTS

Part I Section 62.—Adjusted Gross Income Defined (Also: §§ 274(d), 3121(a), 3306(b), 3401(a)) 26 CFR 1.62-2: Reimbursements and other expense allowance arrangements (Also: §§ 1.274-5, 1.274-5T, 31.3121(a), 31.3306(b), 31.3401(a)) Rev. Rul. 2003-106 ISSUE Whether an employer’s expense reimbursement arrangement for deductible travel and entertainment expenses, which includes new procedures for the use of electronic receipts and expense reports, is an accountable plan under § 62(a)(2)(A) and (c) of the Internal Revenue Code and the regulations thereunder. FACTS An employer currently maintains a reimbursement arrangement, meeting the accountable plan requirements, under which it reimburses business-related travel and entertainment expenses incurred by its employees; paper receipts and expense reports are required. The employer reimburses employees for all properly substantiated business-related travel and entertainment charges submitted timely on an expense report along with any necessary receipts. The employer excludes from employees’wages reimbursements of all deductible business expenses provided under the arrangement. The employer also reimburses nondeductible business expenses (such as travel not away from home) and treats those reimbursements as wages. The employer does not reimburse employees for personal expenses. To facilitate reimbursement of travel and entertainment expenses, the employer arranges to have a credit card company issue a business credit card to each employee the employer determines is likely to incur travel and entertainment expenses for necessary business reasons. Employees who use the business credit card receive monthly billing statements from the credit card company and are personally liable to the credit card company for all charges billed to the card, including late payment fees. To reduce the burden associated with submitting receipts and expense reports, the employer implements an electronic reimbursement arrangement for travel and entertainment expenses that eliminates the need for paper receipts and paper expense reports in most instances. Under this new arrangement, the credit card company provides the employer with an electronic receipt for all expenses billed to an employee’s business credit card on a daily basis. An electronic receipt contains the date of the charge, the amount of the charge, the merchant’s name, the merchant’s location, and, if available, an itemization from the merchant of each expense included in the charge. The credit card company generally issues three types of electronic receipts to the employer: 1) a receipt with sufficient information on its face to indicate the nature of the charge (such as a charge from an airline carrier for a passenger ticket); 2) a receipt with an aggregate charge itemizing each expense (such as a final bill from a hotel listing separately the costs for meals, lodging and telephone calls); and 3) a receipt with an aggregate charge without itemizing each expense (such as a final bill from a hotel that does not list each charge separately) . Under the employer’s new electronic expense reimbursement arrangement, the employer transfers the electronic receipts received from the credit card company to a database. This information cannot be altered once entered. Employees access the database to create an electronic expense report to accompany the electronic receipts associated with their travel and entertainment expenses. For all expenses, the employees must indicate whether the expenses are personal or business-related travel and entertainment. For all business-related travel and entertainment expenses, the employee must provide the following information in the electronic expense reports for each travel and entertainment expense: 1) a description of the expense and the business purpose it served; and 2) for each entertainment expense, the names and business relationship of the persons entertained in addition to the date of, plac

FAQs

What is the central issue in Rev. Rul. 2003-106?

Whether an employer’s expense reimbursement arrangement for deductible travel and entertainment expenses is an accountable plan under § 62(a)(2)(A) and (c).

How does the arrangement use business credit cards and electronic receipts?

The employer issues business credit cards to selected employees, and the credit card company provides electronic receipts daily for charges billed to the cards; the employer transfers these receipts to a database used to create electronic expense reports.

When are paper receipts and paper expense reports still required?

Paper documentation is required for expenses over $75 when the electronic receipt lacks clear nature, for lodging invoices where electronic itemization is not provided, and for expenses paid without using the business credit card, along with sufficient information to substantiate amount, date, time, place, and business purpose.

Sep 22, 2026

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