Interesting Article on Taxation of Frequent Flyer points, Citibank and a Pending Lawsuit

Discussion in 'General Discussion | Miles/Points' started by toddreg, Aug 19, 2012.  |  Print Topic

  1. toddreg
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    toddreg Silver Member

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  2. marcwint55

    marcwint55 Gold Member

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    MX and LETTERBOY like this.
  3. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    If you are given a toaster when opening a bank account, is that taxable?
     
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  4. Mapsmith
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    Mapsmith Gold Member

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    Do you get miles on that time machine where you can find a bank that gives you a toaster?????

    :D
     
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  5. kansaskeith

    kansaskeith Gold Member

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    OK, first a reminder here we are talking frequent-flyer miles that were given as a premium for opening an account -- and, perhaps, some day, if the argument were carried to the extreme (and this gets beyond the Citibank case) -- about miles that that the employee was allowed to keep for personal use after flying on business with tickets the employer paid for.

    We are NOT talking about taxation of an individual's other personal miles, which with pretty sound justification can be said to be a volume discount, or non-taxable rebate.

    Also, keep in mind that Citi issued those 1099s only in cases where the miles were substantial, valued over several hundred dollars (I believe $600 was the cut-off, and Citi was said to have valued miles at about 2 1/2 cents each -- the 2 1/2 cent valuation seems high to me, but that is beside the point here.)

    All that said, since you get to keep the money you put in the bank account and get the miles too, arguably it is income just like interest is.

    Now, as far as marcwint55's theory that the miles could expire and one not get a write-off, take an absurd parallel that the bank instead of miles gave you perishable goods ($600 worth of potted plants, or 300 gallons of milk) for opening an account. That is income, it has a price, it's worth more than $600 -- so since all three are met, you would get a 1099, even if the plants died (as mine usually do) or the milk went sour.

    And yes, havemileswilltravel, the toaster would qualify as income. But as far as a 1099, lemme ask you the last time you used a $600 toaster? (As for me, I prefer cereal to toast in the mornings -- gotta use up those 300 gallons of milk somehow.)
     
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  6. kansaskeith

    kansaskeith Gold Member

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    If a client came to me with one of those Citi 1099s, I think I would tell him/her of the arguments on both sides and the pending lawsuit, but also mention the fact that if a $600+ 1099 is reported by the payor but not the payee, the I.R.S. computers have the ability to spot the no-match and flag the return.

    If the client said "I'd rather report it than risk the hassle of an audit," as almost all of mine usually do, I would then do some research to see if I could with some justification make a case that the miles were worth less than 2 1/2 cents each. If I could do that (and depending how strong my case was I might or might not need an I.R.S. Form 8275), I would then show the full amount of the 1099 (e.g., $600) on the client's tax return, so it would not get flagged in the matching process, and then show a separate negative adjustment, probably on Schedule B, of the difference between my valuation of the miles and Citibank's 2 1/2 cents, thus saving the client some tax.

    But in the rare case the client said, "audit, schmawdit, no frickin' way I'm gonna declare this 1099," I'd have to wrestle with whether or not I wanted to prepare that return, or else strongly consider attaching Form 8275 (the so-called "Audit Me Now" form). Hopefully the I.R.S. or Congress will come up with better clarification to make this issue less troublesome for clients and their preparers. and (pipe dream here) before next tax season.
     
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  7. LETTERBOY
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    LETTERBOY Gold Member

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    You think the IRS or Congress would EVER do ANYTHING to make things easier for the public? :D May I have some of what you're smoking, please? :D
     
  8. kansaskeith

    kansaskeith Gold Member

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    Now if I admitted somebody gave me something to smoke, I'd have to declare it as income, correct?
     
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  9. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Last time used? Couple of days in the work cafeteria to toast a bagel. My own toaster isn't quite as fancy as this one

    http://www.amazon.com/Toast-Qwik-Toaster-14-Slice-22-3-4inLx14-1-8inH-Bagel/dp/B002XH7BQE

    but I do believe in buying high-quality, having burned -- not literally, fortunately -- throughh several toasters and coffee makers in the last decade or so. Those conveyor ones aren't too practical for my small household, but I did pay for a higher-end model.

    Right, I suspect finding a bank at hands out toasters these days is probably rather difficult. They switched to firearms, as far as I recall :D (but my memory is often bad)
     
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  10. DTWBOB

    DTWBOB Silver Member

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    This is an old topic!

    The only thing new here is the lawsuit....

    In previous threads, the concensus was to ask the bank for an amended 1099 misc showing zero value and if the bank refused to give one, for the customers to take their business elsewhere.

    It'll be interesting to see what --- if anything besides lawyers' fees--- comes of this --- and if the lawyer takes a cut of the settlement, the suer still could lose... just not as much.

    DTWBOB
     
  11. NYBanker
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    NYBanker Gold Member

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    Yes.
     
  12. NYBanker
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    This is bad because it draws attention to card sign up bonuses.
     
  13. Scottrick
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    Scottrick Gold Member

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    Even if it does get reported as $600 income, it's not like you're paying $600 for the bonus. My marginal tax rate is 15%. So if Citi values the miles at 2.5 cents each, and I'm paying 15% tax on those, I'm really only paying 0.375 cents per mile. That's still a good deal. Not free, but a good deal.
     
  14. Counsellor
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    Counsellor Gold Member

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    Only if it was in exchange for a good or service he got from you. If a bona-fide gift, tax consequences are the donor's as I understand it.

    So, just to make sure it doesn't appear to be barter income, make sure you don't do the donor's tax returns (particularly if you're under the influence of the "gift"). :D
     

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