Google Groups no longer supports new Usenet posts or subscriptions. Historical content remains viewable.
Dismiss
Value of Frequent Flier Miles
10 views
Skip to first unread message
Hank Youngerman
Feb 6, 2012, 12:02:33 PM2/6/12
to
There's a raging controversy over this, as Citibank gave American
Airlines miles as a promotion for opening new accounts, then sent
customers 1099's valuing the miles at 2.5 cents per mile.
Assuming (as seems sensible) that the miles are considered bonus
interest on an account, what should the value be.
Let me give some parameters:
a) If you redeem the miles optimally, you can potentially get a value
of 5 cents per mile, say 100,000 miles for an international business
class ticket that would cost $5000. (But how many people would buy it
for cash if they had to pay $5000?)
b) If you buy miles from airlines directly, they usually cost between
2.5 cents and 3 cents per.
c) If you want to redeem them for merchandise, gift cards, or travel
not directly related to a frequent flier award, they usually can be
redeemed for value of 0.6 to 1.0 cents, occasionally 1.25 cents.
d) Black-market transactions generally take place at 1.0 to 1.5 cents
per mile.
e) In practice, when used for award tickets, the value can vary
greatly. At one extreme, I once got a last-minute ticket on a high-
fare route that would have cost $2000 for 25,000 miles, a value of 8
cents per mile - but I wouldn't have bought the ticket for $2000. I
have seen other times that a $100 ticket would take 50,000 miles, a
value of 0.2 cents - but nobody would buy that ticket with miles of
course.
f) Bulk purchasers (like Citibank) probably pay about 1 cent per mile.
g) Under the terms and conditions of the programs, miles remain the
property of the airline. As such, you could argue that there is no
constructive receipt until you redeem them, because the airline could
revoke them at any time. (This has a bit of a tinge of a tax
protester argument, but I think it's a good deal stronger that arguing
that if you're not paid in gold, it's not income. I'm not sure I'd
actually try it. But considering that Citi was giving American
Airlines miles, and that AA is bankrupt, it makes an interesting
argument.)
So what should the miles be valued at, and what is the recourse for a
taxpayer who got a 1099 that overvalued the miles?
Also, assuming Citi bought them for 1 cent, what are the implications
to Citi? Do they get a deduction for 2.5 cents? Do they report the
difference between the purchase price and 2.5 cents as income? Is
this just a con game to pump up their profits and make their customers
pay the taxes on them?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Airlines miles as a promotion for opening new accounts, then sent
customers 1099's valuing the miles at 2.5 cents per mile.
Assuming (as seems sensible) that the miles are considered bonus
interest on an account, what should the value be.
Let me give some parameters:
a) If you redeem the miles optimally, you can potentially get a value
of 5 cents per mile, say 100,000 miles for an international business
class ticket that would cost $5000. (But how many people would buy it
for cash if they had to pay $5000?)
b) If you buy miles from airlines directly, they usually cost between
2.5 cents and 3 cents per.
c) If you want to redeem them for merchandise, gift cards, or travel
not directly related to a frequent flier award, they usually can be
redeemed for value of 0.6 to 1.0 cents, occasionally 1.25 cents.
d) Black-market transactions generally take place at 1.0 to 1.5 cents
per mile.
e) In practice, when used for award tickets, the value can vary
greatly. At one extreme, I once got a last-minute ticket on a high-
fare route that would have cost $2000 for 25,000 miles, a value of 8
cents per mile - but I wouldn't have bought the ticket for $2000. I
have seen other times that a $100 ticket would take 50,000 miles, a
value of 0.2 cents - but nobody would buy that ticket with miles of
course.
f) Bulk purchasers (like Citibank) probably pay about 1 cent per mile.
g) Under the terms and conditions of the programs, miles remain the
property of the airline. As such, you could argue that there is no
constructive receipt until you redeem them, because the airline could
revoke them at any time. (This has a bit of a tinge of a tax
protester argument, but I think it's a good deal stronger that arguing
that if you're not paid in gold, it's not income. I'm not sure I'd
actually try it. But considering that Citi was giving American
Airlines miles, and that AA is bankrupt, it makes an interesting
argument.)
So what should the miles be valued at, and what is the recourse for a
taxpayer who got a 1099 that overvalued the miles?
Also, assuming Citi bought them for 1 cent, what are the implications
to Citi? Do they get a deduction for 2.5 cents? Do they report the
difference between the purchase price and 2.5 cents as income? Is
this just a con game to pump up their profits and make their customers
pay the taxes on them?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Bill Brown
Feb 6, 2012, 12:54:10 PM2/6/12
to
On Feb 6, 12:02 pm, Hank Youngerman <dontspa...@redtopbg.com> wrote:
> There's a raging controversy over this, as Citibank gave American ...
The entire problem with this issue revolves around valuation. The IRS
has avoided controversy by saying FFMs have zero value and zero basis.
I would be interested to know how Citibank came up with values to put
on those 1099s.
Frankly, I consider this event to be yet another reason not to do
business with Citibank.
> There's a raging controversy over this, as Citibank gave American ...
The entire problem with this issue revolves around valuation. The IRS
has avoided controversy by saying FFMs have zero value and zero basis.
I would be interested to know how Citibank came up with values to put
on those 1099s.
Frankly, I consider this event to be yet another reason not to do
business with Citibank.
ira smilovitz
Feb 6, 2012, 1:12:47 PM2/6/12
to
On Monday, February 6, 2012 12:02:33 PM UTC-5, Hank Youngerman wrote:
[most snipped]
> So what should the miles be valued at, and what is the recourse for a
> taxpayer who got a 1099 that overvalued the miles?
If I, or one of my clients, were the recipient, I would treat it the same as a 1099 received from a TV show where they value gifts at full retail. I would document a lower value and report accordingly. In the case of miles, I would look for the cheapest (dollar) trip that cost the most miles and use that to calculate the value of the miles.
Ira Smilovitz
Leonia, NJ
[most snipped]
> So what should the miles be valued at, and what is the recourse for a
> taxpayer who got a 1099 that overvalued the miles?
Ira Smilovitz
Leonia, NJ
Rich Carreiro
Feb 6, 2012, 1:50:58 PM2/6/12
to
Bill Brown <w.p.br...@gmail.com> writes:
> On Feb 6, 12:02 pm, Hank Youngerman <dontspa...@redtopbg.com> wrote:
>> There's a raging controversy over this, as Citibank gave American ...
>
> The entire problem with this issue revolves around valuation. The IRS
> has avoided controversy by saying FFMs have zero value and zero basis.
Actually, I thought the IRS fudged by basically saying they're
> On Feb 6, 12:02 pm, Hank Youngerman <dontspa...@redtopbg.com> wrote:
>> There's a raging controversy over this, as Citibank gave American ...
>
> The entire problem with this issue revolves around valuation. The IRS
> has avoided controversy by saying FFMs have zero value and zero basis.
going to punt on the whole FFM thing and will not go after
people for it, but never actually came out and said they
have zero value.
--
Rich Carreiro rlc-...@rlcarr.com
Hank Youngerman
Feb 6, 2012, 1:57:58 PM2/6/12
to
On Feb 6, 12:54 pm, Bill Brown <w.p.brown....@gmail.com> wrote:
> On Feb 6, 12:02 pm, Hank Youngerman <dontspa...@redtopbg.com> wrote:
>
> > There's a raging controversy over this, as Citibank gave American ...
>
> The entire problem with this issue revolves around valuation. The IRS
> has avoided controversy by saying FFMs have zero value and zero basis.
>
> I would be interested to know how Citibank came up with values to put
> on those 1099s.
>
> Frankly, I consider this event to be yet another reason not to do
> business with Citibank.
I believe that IRS's position varies. (See article on page B8 or B9
> On Feb 6, 12:02 pm, Hank Youngerman <dontspa...@redtopbg.com> wrote:
>
> > There's a raging controversy over this, as Citibank gave American ...
>
> The entire problem with this issue revolves around valuation. The IRS
> has avoided controversy by saying FFMs have zero value and zero basis.
>
> I would be interested to know how Citibank came up with values to put
> on those 1099s.
>
> Frankly, I consider this event to be yet another reason not to do
> business with Citibank.
of last Saturday's Wall Street Journal.) In many cases they consider
them a non-taxable rebate. For employees keeping the miles accrued
from business use, IRS announced in 2002 that they were not concluding
they were non-taxable, but they were not taking action at that time
and any future action would not be retroactive. However, for miles
given as a bonus for an investment, they are apparently considered
taxable interest.
It does puzzle me that Citibank would value them at such a high
amount. Maybe they want their customers to think they got something
of great value, but if you put a dress on a pig, it's still a pig.
Stuart A. Bronstein
Feb 6, 2012, 2:16:44 PM2/6/12
to
ira smilovitz <ira.sm...@gmail.com> wrote:
> Hank Youngerman wrote:
>
> [most snipped]
>
>> So what should the miles be valued at, and what is the recourse
>> for a taxpayer who got a 1099 that overvalued the miles?
>
> If I, or one of my clients, were the recipient, I would treat it
> the same as a 1099 received from a TV show where they value
> gifts at full retail. I would document a lower value and report
> accordingly. In the case of miles, I would look for the cheapest
> (dollar) trip that cost the most miles and use that to calculate
> the value of the miles.
How do you treat a toaster or $50 given by a bank when someone opens
> Hank Youngerman wrote:
>
> [most snipped]
>
>> So what should the miles be valued at, and what is the recourse
>> for a taxpayer who got a 1099 that overvalued the miles?
>
> If I, or one of my clients, were the recipient, I would treat it
> the same as a 1099 received from a TV show where they value
> gifts at full retail. I would document a lower value and report
> accordingly. In the case of miles, I would look for the cheapest
> (dollar) trip that cost the most miles and use that to calculate
> the value of the miles.
a new account?
___
Stu
http://DownToEarthLawyer.com
Hank Youngerman
Feb 6, 2012, 3:05:37 PM2/6/12
to
On Feb 6, 2:16 pm, "Stuart A. Bronstein" <spamt...@lexregia.com>
wrote:
as a coffee mug or t-shirt are not reportable.
wrote:
> ira smilovitz <ira.smilov...@gmail.com> wrote:
> > Hank Youngerman wrote:
>
> > [most snipped]
>
> >> So what should the miles be valued at, and what is the recourse
> >> for a taxpayer who got a 1099 that overvalued the miles?
>
> > If I, or one of my clients, were the recipient, I would treat it
> > the same as a 1099 received from a TV show where they value
> > gifts at full retail. I would document a lower value and report
> > accordingly. In the case of miles, I would look for the cheapest
> > (dollar) trip that cost the most miles and use that to calculate
> > the value of the miles.
>
> How do you treat a toaster or $50 given by a bank when someone opens
> a new account?
>
> ___
> Stuhttp://DownToEarthLawyer.com
The $50 and the toaster are reported on a 1099. De minimus gifts such
> > Hank Youngerman wrote:
>
> > [most snipped]
>
> >> So what should the miles be valued at, and what is the recourse
> >> for a taxpayer who got a 1099 that overvalued the miles?
>
> > If I, or one of my clients, were the recipient, I would treat it
> > the same as a 1099 received from a TV show where they value
> > gifts at full retail. I would document a lower value and report
> > accordingly. In the case of miles, I would look for the cheapest
> > (dollar) trip that cost the most miles and use that to calculate
> > the value of the miles.
>
> How do you treat a toaster or $50 given by a bank when someone opens
> a new account?
>
> ___
> Stuhttp://DownToEarthLawyer.com
as a coffee mug or t-shirt are not reportable.
Stuart A. Bronstein
Feb 6, 2012, 3:13:12 PM2/6/12
to
Hank Youngerman <donts...@redtopbg.com> wrote:
> "Stuart A. Bronstein" <spamt...@lexregia.com> wrote:
>> ira smilovitz <ira.smilov...@gmail.com> wrote:
>> > Hank Youngerman wrote:
>>
>> >> So what should the miles be valued at, and what is the
>> >> recourse for a taxpayer who got a 1099 that overvalued the
>> >> miles?
>>
>> > If I, or one of my clients, were the recipient, I would treat
>> > it the same as a 1099 received from a TV show where they
>> > value gifts at full retail. I would document a lower value
>> > and report accordingly. In the case of miles, I would look
>> > for the cheapest (dollar) trip that cost the most miles and
>> > use that to calculate the value of the miles.
>>
>> How do you treat a toaster or $50 given by a bank when someone
>> opens a new account?
>
> "Stuart A. Bronstein" <spamt...@lexregia.com> wrote:
>> ira smilovitz <ira.smilov...@gmail.com> wrote:
>> > Hank Youngerman wrote:
>>
>> >> So what should the miles be valued at, and what is the
>> >> recourse for a taxpayer who got a 1099 that overvalued the
>> >> miles?
>>
>> > If I, or one of my clients, were the recipient, I would treat
>> > it the same as a 1099 received from a TV show where they
>> > value gifts at full retail. I would document a lower value
>> > and report accordingly. In the case of miles, I would look
>> > for the cheapest (dollar) trip that cost the most miles and
>> > use that to calculate the value of the miles.
>>
>> How do you treat a toaster or $50 given by a bank when someone
>> opens a new account?
>
> The $50 and the toaster are reported on a 1099. De minimus
> gifts such as a coffee mug or t-shirt are not reportable.
Thanks. I wasn't sure if it was treated that way or as a sort of
> gifts such as a coffee mug or t-shirt are not reportable.
pre-bate for money the customer would spend with the bank later.
I'd think mileage should be treated in a similar manner.
___
Stu
http://DownToEarthLawyer.com
Message has been deleted
ira smilovitz
Feb 6, 2012, 7:58:20 PM2/6/12
to
On Monday, February 6, 2012 3:13:12 PM UTC-5, Stuart A. Bronstein wrote:
> Hank Youngerman <donts...@redtopbg.com> wrote:
> > "Stuart A. Bronstein" <spamt...@lexregia.com> wrote:
> >> ira smilovitz <ira.smilov...@gmail.com> wrote:
> >> > Hank Youngerman wrote:
> >>
> >> >> So what should the miles be valued at, and what is the
> >> >> recourse for a taxpayer who got a 1099 that overvalued the
> >> >> miles?
> >>
> >> > If I, or one of my clients, were the recipient, I would treat
> >> > it the same as a 1099 received from a TV show where they
> >> > value gifts at full retail. I would document a lower value
> >> > and report accordingly. In the case of miles, I would look
> >> > for the cheapest (dollar) trip that cost the most miles and
> >> > use that to calculate the value of the miles.
> >>
> >> How do you treat a toaster or $50 given by a bank when someone
> >> opens a new account?
> >
> > The $50 and the toaster are reported on a 1099. De minimus
> > gifts such as a coffee mug or t-shirt are not reportable.
>
> Thanks. I wasn't sure if it was treated that way or as a sort of
> pre-bate for money the customer would spend with the bank later.
>
> I'd think mileage should be treated in a similar manner.
> ___
> Stu
> http://DownToEarthLawyer.com
I'm not disagreeing, but the dollar amount here is much greater than a $50 toaster. For $50 I wouldn't waste time trying to document a lower value.
> Hank Youngerman <donts...@redtopbg.com> wrote:
> > "Stuart A. Bronstein" <spamt...@lexregia.com> wrote:
> >> ira smilovitz <ira.smilov...@gmail.com> wrote:
> >> > Hank Youngerman wrote:
> >>
> >> >> So what should the miles be valued at, and what is the
> >> >> recourse for a taxpayer who got a 1099 that overvalued the
> >> >> miles?
> >>
> >> > If I, or one of my clients, were the recipient, I would treat
> >> > it the same as a 1099 received from a TV show where they
> >> > value gifts at full retail. I would document a lower value
> >> > and report accordingly. In the case of miles, I would look
> >> > for the cheapest (dollar) trip that cost the most miles and
> >> > use that to calculate the value of the miles.
> >>
> >> How do you treat a toaster or $50 given by a bank when someone
> >> opens a new account?
> >
> > The $50 and the toaster are reported on a 1099. De minimus
> > gifts such as a coffee mug or t-shirt are not reportable.
>
> Thanks. I wasn't sure if it was treated that way or as a sort of
> pre-bate for money the customer would spend with the bank later.
>
> I'd think mileage should be treated in a similar manner.
> ___
> Stu
> http://DownToEarthLawyer.com
Ira Smilovitz
Leonia, NJ
Bob Sandler
Feb 6, 2012, 8:56:58 PM2/6/12
to
>However, for miles
>given as a bonus for an investment, they are apparently considered
>taxable interest.
But Citibank didn't report this as interest. They reported
>given as a bonus for an investment, they are apparently considered
>taxable interest.
it on a 1099-MISC. A spokesperson for Citibank said it was
in the category of prizes and awards. (I assume that means
they put it box 3.)
"Catherine Pulley, a Citi spokeswoman, cited the 2012
instructions for Form 1099-MISC, which state that income tax
must be paid if at least $600 in 'prizes and awards' is
received."
(Quoted from a news article at
http://www.latimes.com/business/la-fi-lazarus-20120124%2C0%2C1228880.column)
Bob Sandler
0 new messages