In a federal class action lawsuit, Citibank customers are suing because they say the bank lured them in by offering frequent flyer miles, and not telling them that they would have to report those miles as 2.5 cents per mile income to the IRS. The lead plaintiffs, Bertram Hirsh and Igor Romanov claim that Citibank grossly overvalued the miles. The complaint states, “It is widely understood in the marketplace that airline miles are not reported to the IRS as being taxable for income tax purposes. Indeed, Citibank expressly informed plaintiff Hirsch that the American Airlines miles that he would receive for opening up Citibank checking and savings accounts were not taxable.”

“Even if the airline miles were taxable, Citibank’s practice of valuing the airline miles at 2.5 cents per mile is grossly unfair and deceptive. Airline miles have no value to Citibank customers that can be fixed at the time they are awarded. If redeemed, these miles typically have an average value to customers of between .76 cents per mile and 1.2 cents per mile. At least one study recently concluded that American Airlines miles in particular are only worth about .76 cents per mile.”

Hirsch and Romanov say they each received 40,000 frequent flyer miles for opening Citibank accounts with minimum deposits of $25,000, in New York and California and are now on the hook for $1,000 in income from those miles.

“Citibank does not disclose in its American Airlines promotional offering materials that Citibank will report to the IRS that its customers received miscellaneous income as the result of the receipt of airline miles, or that the American Airlines miles would be valued at 2.5 cents per mile by Citibank, because Citibank knew that very few customers, if any, would take advantage of the offer if the disclosures were made.”

Hirsch and Romanov seek class certification, restitution and compensatory and punitive damages for unfair trade practices, breach of contract, negligent misrepresentation and unjust enrichment. And they request that Citibank be directed to stop the practice.