Is the Tax Man Coming After Your Frequent Flyer Miles?

Two years ago, I read this regarding the taxation of frequent flyer miles/loyalty points:

Scores of individuals reported the week of January 23 that Citibank issued them Forms   1099-MISC, representing the value of frequent flier miles awarded as part of a promotion for opening an account. The story was first reported in the Los Angeles Times on January 24.

Citibank defended its decision to report airline miles as income. “The Internal Revenue Code recognizes rewards as taxable income — with the exception of promotions tied to credit and debit purchases. This recognition by the [Internal Revenue Code] is disclosed to customers prior to their election to participate in the promotion,” it said.

The IRS agreed. “When frequent flyer miles are provided as a premium for opening a financial account, it can be a taxable situation to reporting under current law,” it said in a statement.

Now word comes out that the IRS is considering enforcing what they already believe to be their right to tax your frequent flyer miles.  Apparently an industry group representing hotel and airline owners has written a letter to the Treasury Secretary protesting in advance, but other than the few tidbits in this post and here, the issue remains under the radar and has not been written about except in a few blogs.

Here’s your chance to weigh in, although as usual I am skeptical that anything other than a mass uproar will derail the regulatory state’s never-ending expansionary efforts.  But you’ll feel better if you try, right?  After establishing your anger at the very idea and then blasting them for ever considering it, I’d make two basic points in letters to the White House and Congress:

1.  Does the IRS really have the right to do this, as opposed to Congress? (OK, you can stop laughing now,  Include this question anyway).

2.  Not everything ought to be a taxable event.  That’ll blow their minds.

Good luck to us all!