Friday, May 30, 2014
New York Sun: IRS Eyes New Ways to Tax Miles of Frequent Fliers, by Ira Stoll:
Just in time for your summer vacation, the IRS is getting ready to toughen the tax treatment on frequent flyer miles and hotel loyalty reward programs.
The IRS announced in 2002 that it wouldn’t try to go after individuals for income taxes on frequent flyer miles or hotel loyalty points earned on company-paid business trips. Yet the temptation to wring some tax revenue out of the vast non-dollar economy of Starwood Preferred Guest Starpoints, Marriott Rewards points, American Airlines AAdvantage miles, Delta Skymiles, and so on is apparently so great that that the government just cannot resist.
Sure enough, the Tax Foundation, a research group that tracks tax issues, flags a recent post on the View From the Wing blog that runs under the provocative headline, “The IRS Looks To Be on the Verge of Imposing a Big Tax Burden on Loyalty Points.”
The IRS’s plans are vague, but they have airlines and hotel owners concerned enough about the issue that they reportedly sent a letter to Treasury Secretary Jacob Lew. “The IRS’ proposal to alter the tax treatment of loyalty programs will impose a significant new tax on existing and future loyalty points that travel customers enjoy and rely upon,” said the letter, according to a report in Politico. “Any change or clarification of loyalty program accounting should be made through the legislative process, not IRS promulgation.”
Frequent flyer mile fanatics got a wake-up call on the issue back in 2012 when Citibank sent IRS Forms 1099, documenting “miscellaneous income,” at a rate of 2.5 cents a mile, to customers who had signed up for an American Airlines-branded credit card and gotten 40,000 AAdvantage miles as a bonus. It was an unpleasant surprise to cardholders who thought they were getting a free trip, not an unwanted extra tax bill.