LA Times: Citibank deems frequent-flier miles taxable, but does the IRS?

Discussion in 'General Discussion | Miles/Points' started by LAXtraveler, Jan 23, 2012.  |  Print Topic

  1. LAXtraveler
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    LAXtraveler Gold Member

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  2. deant
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    deant Milepoint Guide

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    There have been numerous reports on FT of Citi reporting miles earned from opening checking and savings accounts to the IRS on a 1099-Misc.

    I would suspect that if you get a 1099-misc and don't report the income it will be a red flag to the IRS. How would the IRS know that the 1099 was for miles rather than some other sort of income that should legitimately be taxed?

    Bottom line is that if I were to receive a 1099 based on the miles I earned from opening a checking / savings account, I would be very hesitant to not report it.
     
  3. TAHKUCT
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    TAHKUCT Gold Member

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    You should definitely report it as income if you received a 1099.

    I also have read multiple reports over the past year on FT regarding Citi issuing 1099 for miles bonuses for opening a checking account. Receiving 1099 makes Citi's offer much less lucrative.
     
  4. DTWBOB

    DTWBOB Silver Member

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    I agree ... the only work around is to request an amended 1099-misc showing zero value and I recommend being a bit hard nosed and tell them you'll close the account if you don't receive it.

    The next thing that may happen is getting 1099-misc's for points from opening credit card accounts.

    DTWBOB
     
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  5. viguera
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    viguera Gold Member

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    Just as a datapoint, I opened a Citi account last year for the miles and did indeed receive a 1099-MISC listing $750 as the "income" from the miles.
     
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  6. yaychemistry

    yaychemistry Silver Member

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    The article also reports the Citi values miles at 2.5 cents... Unless you're Lucky (both the blogger, or the adjective) and constantly redeeming miles for F awards, I doubt that anyone would value their miles at 2.5 cents.

    Also, as per most Mileage programs ToCs, the miles are property of the airline/mileage program, not the account holder. Therefore, how can a person be taxed for miles that are the property of another entity?
     
  7. Up&Away

    Up&Away Silver Member

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    It seems that there's no real value to the miles until you use them. If they can expire (which I'm willing to bet a lot of miles do) then they can potentially be no value at all. Trying to think if there's a similar-to, i.e., a prize or award that has no value until used. If it isn't/can't be used, does the recipient still have to pay taxes?
     
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  8. Sweet Willie
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    Sweet Willie Gold Member

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    whoa, seems I won't be opening any new cards with Citi.
     
  9. tondoleo
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    tondoleo Gold Member

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    Citibank's theory is you are earning something of value from them. The bonus is not a gift. Rather than get interest for the money you keep in your checking account you get miles. Since it is considered income it becomes taxable. It is no different than getting the 1099-Int for opening a checking account that came with a $ 100.00 bonus. It is not a gift. Yes, it is absurd. Yes, you must report this on your taxes. Yes, people should stop opening these accounts for the miles. Citi will then come up with a more consumer friendly vehicle to give miles that will not trigger taxable events.
     
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  10. Espan

    Espan Silver Member

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    sounds like we're only talking about their checking account sign-up bonuses. Has anyone gotten a 1099 for a cc signup bonus?
     
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  11. Sweet Willie
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    Sweet Willie Gold Member

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    and if Citi has started to go down this road, how long before they start issuing 1099s for miles earned via montly spend on their credit cards and even worse, when will other banks follow suit?

    Personally I doubt that Citi thought this up on their own, perhaps Fed pressure?

    From the article:
    Wind, the accountant, was stunned by Citi's defense of reporting miles as taxable income. He said he couldn't think of any instance in which miles would be given out except as a prize or award.

    "This opens up the notion that all miles are taxable," Wind said.

    It does. And it's insufficient for the IRS to avoid taking a stand and to say only that it won't go after people for failing to declare their frequent-flier miles.
     
  12. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Kind of like US dollars. Both are "worthless" in my accounts until I use them to buy goods and services ;)
     
  13. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    No one is issuing 1099s for cash back cards, right? I think that would be the more logical choice, if there is one. But is that really income and not just a 1% or so discount on the purchase price of whatever was charged?
     
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  14. thegrailer
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    thegrailer Silver Member

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    I could hold on to those worthless US dollars for you until you find a use for them. I'll sacrifice to ease your burden :rolleyes:

     
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  15. DTWBOB

    DTWBOB Silver Member

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    Except there's a third party involved -- i.e. miles received from banks and credit card companies aren't a rebate as can happen, for example, with a well known credit card that gives you up to a five percent of the amount you purchased off a future bill.

    DTWBOB
     
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  16. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Well, I might burn them for heat :)
     
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  17. jbcarioca
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    jbcarioca Gold Member

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    This one absolutely is a discount. The IRS position on miles IIRC is that miles received are discounts rather than income. Why Citi chose to do this is bewildering to me.
     
  18. Scottrick
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    Scottrick Gold Member

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    So can I claim a long-term capital loss if Citi reports my miles on a 1099 and then they expire from inactivity? :p
     
  19. thegrailer
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    thegrailer Silver Member

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    Better yet, when there is a devaluation by BA or Hilton or any other entity, is that a loss too?

    And I've been checking out your blog - nice so far

    Cheers

     
  20. mikeef
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    mikeef Silver Member

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    Wow. I can deal with the robo-signing scandal and being bailed out after almost destroying the economy.

    But saying that my miles are taxable? Please, won't somebody stop the madness!

    Mike
     
  21. Toula
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    Toula Gold Member

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    I think anyone who receives a 1099 and chooses not to disclose it in their tax return are crazy as you could be opening a big can of whoop-arse with the IRS. The last thing I would want to do is anything that may give the IRS to nitpick my tax returns for the past 7 years and forever more over a few bucks. Even if you have nothing to hide, the sheer inconvenience would be more than the value of that 1099.
     
  22. LAXtraveler
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    LAXtraveler Gold Member

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    Nice recap of the issue over at your new blog.
     
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  23. Up&Away

    Up&Away Silver Member

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    Your "worthless" US dollars will not expire. In fact, if you somehow forget about them, they'll be kept in some cubby hole in unclaimed property until you (or someone "looking after your things") finds out they're there.
     
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  24. HaveMilesWillTravel
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    Neither will my Sky Pesos :)
     
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  25. Gary Steiger
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    Gary Steiger Silver Member

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    Deleted, because I misremembered.
     
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