LA Times: "IRS clarifies its stand on whether airline miles are taxable"

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

  1. LAXtraveler
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    LAXtraveler Gold Member

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  2. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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  3. deant
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    deant Milepoint Guide

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    Great to know that the IRS has taken a stand.
     
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  4. wombat18
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    wombat18 Silver Member

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    "Consumers will owe taxes on miles they receive for opening a bank account, but miles they get for making purchases on credit cards or for taking a trip are tax-free, the federal agency says."

    Hmm, so how much are the miles worth? Can I sell them for that amount? Can the IRS tell which ones were received from opening a new account, and can I deduct the loss made when I sell for less than the amount Citi says they are worth?
     
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  5. asanders0001

    asanders0001 Silver Member

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    Does anyone know if TDAmeritrade or Fidelity send out 1099's for the miles given out for deposits into their brokerage accounts?
     
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  6. mht_flyer
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    mht_flyer Gold Member

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    Note to self - Never open a bank account to get a mileage bonus....
     
  7. alohastephen

    alohastephen Gold Member

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    Does interest earning accounts count as "opening a bank account?"
     
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  8. dc3
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    dc3 Silver Member

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    So the IRS says -

    "Under the income tax law," Eldridge replied, "the amount of income to the taxpayer is the "Under the income tax law," Eldridge replied, "the amount of income to the taxpayer is the value of the property received, not the cost that the business paid to acquire the property.", not the cost that the business paid to acquire the property."

    If I get 50,000 miles from Citi or win a contest and get 50,000 miles and the company reports the miles are worth $0.30 ($1500), but I but 2 coach tickets which are worth $300 each (the cost at the time of purchase with the miles). what is the " amount of income to the taxpayer is the value of the property received" ?? $1500 or $600 (for the 2 $300 real, actual tickets)?? Or what would be the value if I got an off-season business class ticket ticket to Europe worth $5000?
     
  9. DTWBOB

    DTWBOB Silver Member

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    IRS uses the same logic on donations of items such as cars to tax exempt organizations -- it's the free market value of the item, not the cost to obtain it, that you're allowed to deduct

    Same logic applies when you receive something (such as a book or DVD), from for example a PBS TV station when you make a cash donation to it. The fair market value of the item you received gets subtracted from the amount you're allowed to deduct.

    There's still a can of worms here: namely the value of the miles you get for opening these bank accounts.

    DTWBOB
     
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  10. Wandering Aramean
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    Wandering Aramean Gold Member

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    Here's the actual quote in the article from the IRS:

    By using the term "financial account" there I'd say the answer is decidedly yes. (ETA: but I'm clearly not a tax expert and believing anything I say is done at your own risk).
     
  11. alohastephen

    alohastephen Gold Member

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    closed my BD mileage account today
    :rolleyes:
     
  12. 2soonold
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    2soonold Gold Member

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    is this a new part of "the war on savers"?
     
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  13. rrgg
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    rrgg Silver Member

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    I don't understand this reporter. First of all, Citi has been doing this for at least several years and it is NOT news. Just check the Citi thread that appears annually on FT. Second, he gripes about the stand the IRS has taken and quotes a CPA about the inconsistency.

    So he wants a more consistent answer from the IRS? Really? If pressed to change this, the IRS will make things worse for us not better. I hope he leaves it alone and this is the end of it.
     
  14. Bluto
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    Bluto Silver Member

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    It will be very interesting to see if credit card bonuses are taxed as well. If bonuses for opening bank accounts are taxable then bonuses for opening credit cards almost certainly are. This could bring down the travel blog economy.
     
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  15. DTWBOB

    DTWBOB Silver Member

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    I think there's a bit of a technical difference here -- anything you get from a bank account is income, anything you get from things like credit cards is a form of a rebate and a reversal of an expense.

    Now if they start taxing toasters we're really in trouble <lol>

    DTWBOB
     
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  16. RestlessLocationSyndrome
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    RestlessLocationSyndrome Silver Member

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    Hmm.... I think it is logical to tax earnings (or miles) from savings instruments (i.e. accounts earning interest) and not tax earnings (or miles) from spending instruments (i.e. credit cards).

    However, what do you consider a checking account which accrues no interest? In my perspective, this type of checking account is not a savings instrument and does not generate income for the life of the account. I don't see why this would qualify as taxable income because I see the $ or miles received from a sign on bonus as a rebate of future spending that you would be making through the checking account.

    But apparently, the IRS has already stated that the bonus is taxable if they come from a financial instrument and since a checking account (even non-interest earning ones) are likely defined as financial instruments, I don't think I'll win the argument come audit time.
     
  17. Tenmoc
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    Tenmoc Gold Member

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    The real problem here is the use of free market value. Per the T&C we are not allowed to sell these miles and points and therefore there is no free market.
     
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  18. LAXtraveler
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    LAXtraveler Gold Member

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    I agree. Since it is crystal clear from the T&Cs of these programs that the miles are property of the airline and are not-transferable, nor can be sold or bartered in any way (esp. AAdvantage miles which have a very robust department dealing with these things), I think Citi would be hard pressed to assign a proper value to these miles that are no more my property than the miles in anyone else's account is there own.
     
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  19. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    They are not your miles when the airline says so, but they (or at least UA does) frequently make announcements such as "On this flight members of our frequent flyer program will earn 6435 miles". Last I checked, if I earn something, it's mine :)
     
  20. tondoleo
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    tondoleo Gold Member

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    According to the Citi Rep in the article toasters received for opening a checking account are considered income. However, I don't remember my parents ever getting a 1099 for that.

    You are correct. We need to lobby the IRS to stop this silliness.

    I suspect Citi was told by their tax attorneys that they needed to send out 1099s in order to make their "books" look better to their shareholders.
     
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  21. cwpfly

    cwpfly Silver Member

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    Less Uncle Sam's share, of course! :)
     
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  22. DTWBOB

    DTWBOB Silver Member

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    That's because the value was less than $600 ... though the cut off may have been lower then. <lol>

    DTWBOB
     
  23. deant
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    deant Milepoint Guide

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    You need to read the entire article. ONLY the financial account (checking / savings) sign-up miles are taxable. Miles earned other ways are not.
     
  24. tarheelblue
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    tarheelblue Silver Member

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    How about calculators? Don't laugh. Here's a quote from a similar thread on FT, citing IRS publication 550: "Gift for opening account. If you receive non-cash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest.
    For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. The value is determined by the cost to the financial institution.
    Example. You open a savings account at your local bank and deposit $800. The account earns $20 interest. You also receive a $15 calculator. If no other interest is credited to your account during the year, the Form 1099-INT you receive will show $35 interest for the year. You must report $35 interest income on your tax return."
     
  25. LETTERBOY
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    LETTERBOY Gold Member

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    Lobbying Congress would probably work better, especially since this is an election year. I don't think that bureaucrats with civil service protections are going to be swayed by public opinion.
     
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