Taxation of frequent flyer miles: Via William T. and others, a Tax Court has ruled on the taxability of points programs under certain circumstances.
The Tax Court yesterday required the taxpayer to include $668 in income as reported by Citibank on Form 1099-MISC as the value of an airline ticket received by the taxpayer upon redemption of 50,000 “Thank You Points” from opening a Citibank account. Shankar v. Commissioner, 143 T.C. No. 5 (Aug. 26, 2014).
When you sign up for a Citibank checking account bonus, and the value of the bonus exceeds $600, you’ll generally get that value reported to the IRS on a 1099-MISC form.
When you redeem Citibank Thank You points earned from a bank account signup bonus, a 1099 may be generated.
Citibank’s view — consistent with IRS statements, when pushed — is that signup bonuses for opening bank accounts may be tax-reportable.
You don’t have to agree with the valuation, you can dispute the value, but a tax court has now ruled (.pdf) against a taxpayer who did not want to include what Citibank reported on its 1099 as income.
- This ruling has zero effect and contributes nothing to the taxability of frequent flyer miles.
- This ruling has zero effect and contributes nothing to the taxability of bank points given for credit cards.
Here’s what happened:
The taxpayer has their gross income increased by the IRS by $668, the value of the tickets redeemed from his Citi Thank You points account; points which were earned from his Citibank bank account.
That’s the reported value of 50,000 points that were redeemed in 2009. The taxpayer’s primary argument was apparently that he knew nothing of the redemption, though he provided no records to dispute the redemption, and his wife wasn’t present at the trial (so the court speculated the redemption could have been for her). Citibank introduced evidence of the redemption.
The taxpayer didn’t dispute that points earned off of a bank account are, essentially, interest. And bank interest is taxable.
..did not object when, at the start of the trial in this
case, respondent’s counsel answered in the affirmative the Court’s question as to whether, besides the IRA contribution, the other item in dispute, i.e., “Other income”, involved the omission from the Form 1040 of interest. Respondent’s counsel added that the omitted income was a noncash award for opening a bank account. We proceed on the assumption that we are dealing here with a premium for making a deposit into, or maintaining a balance in, a bank account. In other words, something given in exchange for the use (deposit) of Mr. Shankar’s money; i.e., something in the nature of interest.
There was also no dispute about the value of the points redemption.
So, unsurprisingly, the Court ruled that income reported on a 1099 that has been substantiated placed a burden on the taxpayer seeking to dispute inclusion in their return. And the taxpayer, representing himself, didn’t really offer much in dispute.
The court is clear they are not addressing the taxability of frequent flyer miles attributable to business travel.
Miles earned for personal travel are rebates. You’re not getting a rebate on your own spending if your employer buys your ticket. But the Court reiterates that still wouldn’t be taxable.
We are not here dealing with the taxability of frequent flyer miles attributable to business or official travel, with respect to which the Commissioner stated in Announcement 2002-18, 2002-1 C.B. 621, he would not assert that a taxpayer has gross income because he received or
used frequent flyer miles attributable to business travel.
Unsurprisingly the view of the tax court in this case was that bank points for bank accounts redeemed for value are tax-reportable. This says nothing about any other sorts of points, and is consistent with current practice.
The Court doesn’t hear, and didn’t discuss, other arguments that were not made but that a future taxpayer might make. This issue is far from over, but the case offers a basic insight into tax law thinking on points.