We have an employee who booked business travel using a combination of credit card (cash) and his award miles (Chase points). He is now requesting a reimbursement of the full cash value of the tickets ($2700), not what was paid on his card for the tickets ($2400).
Is this legal/permissible by the IRS tax code?
If self-employed, only the $2400 could be claimed as business expense, the $300 is a discount on a service so would have no bearing on taxes one way or the other.
I'm confident in the claim above, pretty confident too that if you choose to reimburse the employee $2700, only $2400 is expense reimbursement, $300 is pay subject to income tax, they are making money on this transaction as points aren't money.
The closest IRS source I could find is IRS Publication 463, which states:
IF you have expenses for transportation then you can deduct the cost of...
travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, see Luxury Water Travel and Cruise Ships, under Conventions, earlier, for additional rules and limits.
While it doesn't explicitly mention partial payments via reward, the concept is similar, you can't claim an expense for which there was no actual cost. Similarly you can't claim charitable contribution for donated points. Conversely an individual isn't taxed on points received, you just can't double-dip by claiming an expense for which there was no actual cost.
There are gobs of non-IRS sources that indicate inability to deduct rewards purchases as business expenses, I'm sure an accountant type can give a more technical and complete answer.
