Should you try to write off an Award Ticket as a valid Business Expense?

This is one of those iffy posts, that is on my mind, but certainly shouldn’t be followed.  It is something that I might do, but with the knowledge that I would have to fight, and possibly lose to, the IRS in the event of an Audit.

The IRS will not allow you to claim a cost for using your own Frequent Miles as a deductible business expense.  However, there are several (some might say shady) operations in the market that act as booking services for Business Class tickets by booking your flight with miles that they acquire, and then issuing a ticket for your travel.

With that in mind, in the eyes of the IRS I would imagine if you were to book your business travel using an operator like this you would have paid an agreed upon amount of money, received a ticket, and a receipt and would be, in my opinion (I’m not a Tax Professional) be able to claim that as a valid business deduction, providing that the purpose of the travel was a genuine Business need, and met the criteria of the IRS for such travel.  In fact, it is very likely that many people who book through these services don’t even realize that they are flying on an award ticket, and instead just believe that they have found a very reasonably priced travel agent.

Therefore, buying miles for travel can be valid in this situation  – the only difference to you would be that your ticket would have a different fare class printed on it, to the untrained eye that would be no difference at all.

Now, taking that a step further.  What if we were to buy, in its entirety, the required mileage in Frequent Flier points from your airline, at their rack rate, and then book the ticket directly, with the purpose of travel for Business. Isn’t it just another method to buy the same ticket?

This is a grey area with the IRS, personally I look at it as a way for us to fly for less (when the fares are high and the required frequent flyer miles are low enough) which could be a good idea for a small business.  The reason I would be willing to try this myself is that I believe it is an honest approach to try to cut down on costs whilst spending in a genuine manner.  It is simply the method of paying that changes but that shouldn’t exclude it as an option.  The IRS might well disagree with that, but if they did I would feel genuinely honest in arguing my position, not that necessarily means it would be upheld.

The difference is that your entire ticket would have a genuine cost basis, because you could prove the exact amount paid for the itinerary, which is a different thing from trying to claim that by using your own miles (garnered through rewards either from Credit Cards or by Bum in seat miles)

The equation we must make is this:

Is the price of the purchased frequent flier miles + Taxes and Fees + Risk of Failing Audit less than Cost of Regular Revenue Ticket?

The X Factor here is the value of risk, if you are the type of person who has an aggressive approach to risk the equation might be valid, if you have a high risk aversion tendency then this type of gambit is not for you.  I don’t recommend you do it, but I do recommend that you keep on thinking of crazy ideas to reduce costs while getting things done!

Now, the final piece of the puzzle.  If you are trying to, shall we say,’squeeze the last drop of value’ from a transaction you might win the battle, but lose the war.  You should remember that personalities and egos are involved when fighting for a position, and it might be that you ‘beat’ an audit and prove this is a valid use of business funds and method of payment, but in the process you might annoy an IRS agent or department sufficiently for them to decide to come after the miles fraternity and assign a base value to all earned miles also.  So, be careful of what you do, as you reap what you sow.

Chime in my CPA friends, would you approve this strategy, or steer clear?