How converting airlines points to $$ could mean the end of the world as frequent flyers know it

Discussion in 'General Discussion | Miles/Points' started by sobore, Jan 30, 2012.  |  Print Topic

  1. sobore
    Original Member

    sobore Gold Member

    Messages:
    12,421
    Likes Received:
    33,847
    Status Points:
    16,520
    http://blogs.crikey.com.au/planetal...Feed:+CrikeyBlogs+(Crikey+Blogs)&utm_content=

    Welcome to my nightmare. When Etihad announced an app to turn frequent flyer points or miles into cash at the point of sale with my tablet or phone it probably fulfilled the wildest dreams of some of the sharper minds in the ATO.

    How? By converting the non-taxable generation of loyalty rewards into cash payments, because cash payments are income that has to be declared, whether or not it comes with legitimate tax deductions.

    It doesn’t matter if that cash is considered a discount on goods or services purchased, or a reward for supporting a product, because in the end, it is being rendered as a cash payment, not a ‘free’ seat from distressed inventory, for which the frequent flyer member in say the Qantas Classic pays all of the real costs like any other fare in terms of fuel levies, airport charges and so forth, charges which these days sometimes exceed the special offers that are out there anyhow, but that’s another story most frequent flyers are painfully aware of anyhow.
     
  2. rrgg
    Original Member

    rrgg Silver Member

    Messages:
    83
    Likes Received:
    92
    Status Points:
    305
    Isn't there no income tax in the UAE? Maybe they're doing this because most Ethiad members remain unaffected.
     
    deant likes this.
  3. kansaskeith

    kansaskeith Gold Member

    Messages:
    2,486
    Likes Received:
    5,786
    Status Points:
    4,070
    I'm not sure I agree with this at first glance. The part I think needs further study is the author's statement: "It doesn’t matter if that cash is considered a discount on goods or services purchased, or a reward for supporting a product, because in the end, it is being rendered as a cash payment. . . ." How is this different from the rebate situation where Ford Motor Co. runs a rebate/incentive program that gives you a $1,500 rebate if you buy a new Mustang, and you as the buyer take the option to take the cash back rather than having it applied to your purchase or financing? Auto rebates like that have been going on from the 1970s, and while I am not a C.P.A. I thought it was pretty well established tax law that those car rebates weren't taxable. So how is this different, and why is Crikey flyer getting so cranky? As I say, I need more info before I panic.

    As for Citibank, what they did on 1099s seems still pretty controversial at this point as to whether the I.R.S. thought they had to do that at all, and, remember, that seems to have just been the miles paying you to open a new bank account, not Citibank credit card rewards for using your MasterCard.

    Just my two-cents worth. Not two taxable cents, of course.
     
    deant likes this.
  4. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,198
    Status Points:
    16,520
    sobore, deant and kansaskeith like this.
  5. kansaskeith

    kansaskeith Gold Member

    Messages:
    2,486
    Likes Received:
    5,786
    Status Points:
    4,070
    WHAT??? You're not lining up monthly at the Treasury's website, clamoring to buy more savings bonds? :)

    Funny, that reminds me of the tax prep office where I prepared returns for years (and where I am currently training my successors). At the beginning of last season - a year ago - the I.R.S. came up with some fancy, schmancy new system where people could take their tax refunds in savings bonds instead of straight refunds. I saw the new procedure online, duly researched it, printed it and took it to our boss, proud of what I found. She almost laughed at me, "well, thanks, Keith, but how many of our clients do you think are going to want to do this?" And to my knowledge, she was right: in all of last season in our office, none did. :(

    Now, back to the Ethiad / cash news.

    After reading the Membership Rewards article you linked to, HaveMiles, I think I see what the concern is.

    I've been retired from my (main) job and business travel long enough that I'm predisposed to look at everything in terms of miles one gets for personal travel, ones he pays for himself. In that regard, I still think my Ford Motor Co./Mustang rebate analogy holds. I buy the car, or the air travel, with my own money, and the seller gives me a rebate or volume discount from the posted price, and that is not taxable.

    Where the problem comes in, of course, is that many people - probably most - end up with miles on tickets their EMPLOYERS paid for, not that they bought themselves. And in that regard, yes, it would seem that cash back from the Ethiad app would become taxable just like that link said that savings bonds purchased with Membership Rewards points might be. It becomes monetary compensation arguably from the employer, above and beyond what that employer shows on the W-2, and the various governments may well want to tax it. And since such a preponderance of FF miles come from business travel, that may really muck up the works, and thus mean "the end of the world as Frequent Flyers know it," as referenced in the title of this thread. Got it. Thanks.
     
    sobore and deant like this.
  6. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,198
    Status Points:
    16,520
    Via LAXtraveler in another thread:

    http://www.latimes.com/business/la-fi-lazarus-20120131,0,1866043,full.column

    In short, the IRS' stance is that miles earned for opening a checking account are income (taxable) while mies earned from credit card purchases are rebates.

    Raises the question: aren't miles awarded or opening a credit card account income, too, then? Or does the "posts after first use" turn it into a rebate for that purchase?
     
    deant and kansaskeith like this.
  7. kansaskeith

    kansaskeith Gold Member

    Messages:
    2,486
    Likes Received:
    5,786
    Status Points:
    4,070
    I think you're probably pretty close with the latter. I actually think I follow the distinction in who got 1099s and who didn't, but I certainly respect those like CPA Seltzer (quoted in the Times article) who are confused and befuddled. We need a complete overhaul, and I doubt there will be one anytime soon. Until there is, befuddlement will reign.
     
    deant likes this.
  8. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,198
    Status Points:
    16,520
    So... why didn't Chase send out 1099s for their CO checking accounts?
     
    deant likes this.
  9. kansaskeith

    kansaskeith Gold Member

    Messages:
    2,486
    Likes Received:
    5,786
    Status Points:
    4,070
    Probably because it's a "gray area" and some Chase person paid more attention to the general I.R.S. ruling about miles (like BIS miles, and rebates) not being taxable, and didn't make the distinction about payment for new bank accounts that some Citi person did. Who knows which way the I.R.S. will finally come down? I just say I understand the theory that Citi used on its checking accounts, or think I do.
     
    deant likes this.
  10. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,198
    Status Points:
    16,520
    In any case, I opened that account in 2010, so I think I am safe :)
     
    deant likes this.
  11. Muerl
    Original Member

    Muerl Gold Member

    Messages:
    1,253
    Likes Received:
    2,656
    Status Points:
    1,445
    So, since opening a checking account and receiving miles is taxable, and opening a credit card and using said credit card to earn miles is NOT taxable, what does that mean for miles earned on a checking account for simply having money there?
     
    deant likes this.
  12. 2soonold
    Original Member

    2soonold Gold Member

    Messages:
    3,011
    Likes Received:
    8,385
    Status Points:
    7,145
    I'm all alone in my own little consumer world.:rolleyes:
    Miles and points are an incentive to consume; or they are not.
     
    miles and smiles likes this.
  13. kansaskeith

    kansaskeith Gold Member

    Messages:
    2,486
    Likes Received:
    5,786
    Status Points:
    4,070

Share This Page