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Friday, February 3, 2012

Maule: The Frequent Flyer Tax Flap

CitibankFollowing up on my prior posts (here and here): Jim Maule (Villanova), The Frequent Flyer Flap:

Is a taxpayer required to include in gross income the value of frequent flyer miles received from a bank for opening an account? The story triggering the question broke last week. Citibank, which transfers frequent flyer miles to customers who open an account with the bank, issued Forms 1099 to its customers, reporting the value of the miles – that is another issue – as miscellaneous income. The practical effect is that failure by the customer to report the income will cause the IRS computers to make an adjustment because there is no entry on the customer’s income tax return matching the Form 1099. ... [M]ust the frequent flyer miles received from Citibank for opening accounts be included in gross income?

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Comments

Answer depends on how the miles were earned. If received for using a credit card for purchases, the IRS ruled that no income is reportable, as the value of the miles is considered to be a discount on the purchase price. If the miles are earned for opening an account or some other such action, it is taxable income to the recipient. There is alsoi a $600 floor before reporting is required by the banks, so until recently when they started giving out some big milage rewards, it was not really an issue. For once Citi is doing it right, regardless of how much sense the tax rules are lacking.

Posted by: LEN FULD | Feb 4, 2012 4:17:46 PM

Since many people have their "miles" expire without receiving any benefit from them, does this mean that expired miles will be noted on a 1099 in a similar manner as "bad debt"?

Posted by: J'hn1 | Feb 4, 2012 4:18:57 PM