Citibank Issues 1099s for Its Mileage Rewards Accounts

10:02 pm Asset Protection, Estate Planning, Tax Planning

tax wallet empty 150x150 Citibank Issues 1099s for Its Mileage Rewards AccountsIn a move that even made Forbes cry “Eeek!”, Citibank has issued 1099s to their mileage rewards account holders, reporting as income the mileage awards they received by opening a Citi account.

The 1099s report income to the IRS at a valuation of 2.5 cents per mile, which University of San Francisco tax law professor Dominic Daher called “ridiculous” in the Forbes article.  He acknowledged that taxpayers who receive a 1099 for free miles find themselves having to make a tough choice:  report the inflated income and pay the tax or ignore it and face an audit.

Daher recommends affected taxpayers first call the bank and request a corrected 1099.  If that doesn’t work, he suggests reporting the gross amount on your 1040 and then claiming an adjustment that brings the income down to a fair amount.

The Wall Street Journal’s Tax Report noted that the IRS has not issued any definitive rulings on frequent flier miles.  WSJ consulted with the American Institute of CPAs and the publisher of Inside Flyer magazine about taxation on different categories of frequent flier miles:

Miles award from an airline in return for flying with them – “almost certainly” a nontaxable rebate.

Miles awarded in connection with credit card usage – nontaxable rebate.

Miles awarded in connection with business travel – nontaxable.

Miles awarded as an incentive to open an account – taxable, says the IRS.

Miles awarded as an incentive to put money in a mutual fund – the IRS has issued a private-letter ruling declaring these miles taxable.

Miles awarded as a prize – taxable.

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