Some frequent flyer miles taxable

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I'd worry, only if AGR offers free bonus points for opening a Citibank checking account.

Note that:

1) this is an issue for bonus American Airlines miles offered for opening a checking account, not getting a credit card.

2) Only Citibank has this interpretation.

Money quote: "The bank confirmed that its credit card customers aren't being required to report their miles or other rewards as income." I'll testify to this, as I've drank deep from the well of Citibank American Airlines miles.
 
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Sounds logical, although the cash value being set at a random number seems a little bit odd.

Since the cash value of points can vary widely depending on how you redeem them, I'd expect them to be assigned a much smaller cash value. Heck, even the coupons you get in the Sunday paper usually say "Cash value 1/100th of a cent" on them, although they're clearly worth more than that when you redeem them.
 
It is odd that Citi did not think it was important to disclose the imputed income from the gifted miles when they chose to gift them. It was an act of marketing by them and they did not grant those miles to anyone who did not spend any money on their credit card. So I think they misled their customers in the first place by not fully disclosing the consequences. It is this sort of nonsense from Citi that caused me to severe all relationship with Citi 30 years back vowing never ever to go back to them for anything.

I hope someone puts together a class action suit against them just to see how it pans out.
 
jis said:
they did not grant those miles to anyone who did not spend any money on their credit card.
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That's not true. Credit card users are not affected. It's only checking and savings account holders who are affected. Mrs. Ispolkom and I have gotten heaps of American Airlines miles in the last year from Citibank credit card bonuses, and we've not received any 1099.

I agree with Ryan. Imputing a value of 2.5 cents per American Airlines mile seems absurdly high, unless you're using miles for MileSaaver transatlantic flights out of season.

EDIT: I'll grant that it might well have been a stupid idea to stockpile American Airlines miles at this moment. But at least we aren't paying taxes on them.
 
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Ispolkom said:
That's not true. Credit card users are not affected. It's only checking and savings account holders who are affected. Mrs. Ispolkom and I have gotten heaps of American Airlines miles in the last year from Citibank credit card bonuses, and we've not received any 1099.
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I know that there are banks local to me, that are giving out rewards like from $25 to $100 cash for opening a new bank account. I am sure that such is taxable just like interest. Possibly these credit card awards that are based off bank accounts are considered a form of taxable interest too?
 
If the amount is taxable Citi needs to notify the imputed income value when the reward is given. Not later at their convenience. The receiver should be given a chance to refuse the reward should they choose to do so once they learn of the additional consequences.
 
Cho Cho Charlie said:
Is this why we have to spend money (charge purchases) to a new credit card account before getting those bonus points?
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CCC,

I think you have hit it. BUT, I think it may be the start of a slippery slope. If CITBANK is saying the the bonus miles are taxable that you received for opening a checking account(a service) that you are going to USE, then it is only a short step for the IRS to say the bonus points you received for opening an AGR account (a service) you are going to USE is taxable.

There are BILLIONS in possible revenue for the government if they get wind of CITIBANKS sending 1099s. They would probably say "Gee, we never thought of that" With the current government funding problems, I don't think it is out of the realm of possibilities that the IRS could start going after rewards program saying you received "rations in kind", AGR points in lieu of cash and it is now taxable.

NAVYBLUE
 
The IRS won't pursue anybody for not declaring the value of loyalty points, as long as such value is "marginal" -- in general, less than a few thousand dollars. The main problem is that it's too easy to argue any value that is assigned to them.

The inability to peg a value on these points and miles aside, it's not worth auditing tax returns for less than a thousand dollars of additional taxes owed.
 
I understand that if the receipt of the miles requires that you make use of the thing that you got to be eligible to receive the miles, then it falls under something called the "rebate rule" and the bonus miles are not taxable. What puzzles me is why the same "rebate rule" would not apply to a bank account that must be used in order to actually collect the bonus. Weird.

Methinks it is the banks that are trying to make some money (or reduce their own tax liabilities) off of the granted miles by claiming that to be business expense using an absurdly high costing (way over what it actually cost them). The collateral damage is that their customers have to pay taxes on it, but then Citi has never really cared what happens to their customers as long as they can milk them for all they are worth. :(
 
To the best of my knowledge everything you see on a 1099 has already been provided to the government. The IRS also has reporters pestering them to go on the record with regard to future points taxation thanks to Citi's actions. To which they have only said that Citi's decision is a "reasonable interpretation" of US tax laws. If you were the IRS would you go on the record saying that points will never be taxed in the future? The IRS clearly has the ability to tax points if they decide to. Contesting that fundamental authority is unlikely to get you anywhere but could chew up a lot of your time and money. However, the IRS has also said in the past that they would not be spending their own time and money going after folks who fail to report points accrual on their tax forms. On the other hand, as Citi and other banks begin reporting a taxable value some consumers will choose to contest Citi's assumptions and the IRS will eventually be forced to come up with a method for determining a base value. At that point it will become all too easy to begin increasing enforcement as there will be a lot less guesswork involved.
 
I'll agree that Citibank seems to have gone out of their way to alienate their customers. First, they make it very complicated to earn the bonus American Airlines miles from checking accounts, requiring minimum activity, minimum balance, additional requirements, and repeated follow-up to actually get the miles, all the while risking arbitrary fees and charges. Then to top it off with the 1099 with its absurd valuation of American Airlines miles seems to be adding insult to injury.
 

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