Citibank offers air miles for banking, then tells customers they owe the IRS

[Newsjock]

Source: Los Angeles Times

... Citibank (is) sending tax forms to people who received thousands of miles as a reward for opening a checking or savings account. Those forms value each mile at about 2.5 cents and list the total dollar amount as miscellaneous income.

... "I've been practicing for 25 years and I've never had an instance where miles have been treated as taxable," said Gregg Wind, a West Los Angeles certified public accountant.

... Catherine Pulley, a Citi spokeswoman, said: "This recognition by the Internal Revenue Code is disclosed to customers prior to their election to participate in the promotion."

Not so much, actually. Buried in the fine print of Citi's letter offering the frequent-flier miles, it says only that "customer is responsible for taxes, if any." That's not quite the same as saying Citi will be ratting you out to the IRS for receiving hundreds of dollars in miscellaneous income.

Read more: http://www.latimes.com/business/la-fi-lazarus-20120124,0,1228880.column

[Justice wanted]

1. This is the first time I've heard of a credit card company doing this... Expect the rest to follow.

[msongs]

2. seems like it is not income until you actually use it. nt

[sakabatou]

3. "Buried in the fine print of Citi's letter..."

Just another way banks screw people.

[marmar]

4. ........

[Snake Alchemist]

5. I'm pretty sure it is the IRS doing the telling. nt

[Newsjock]

6. Not quite

Also from TFA:

In 2002, the IRS issued a policy brief noting that because there are "numerous technical and administrative issues" relating to miles, such as how they're valued and used, the agency "has not pursued a tax enforcement program with respect to promotional benefits such as frequent-flier miles."

... An IRS spokeswoman told me only that the 2002 policy brief "still stands." She declined to comment on how this squares with the prizes-and-awards provision of Form 1099, or what taxpayers should do in light of Citi's reporting their airline miles as income.

[Snake Alchemist]

7. So just don't pay the IRS

Citi gets no benefit from these funds. Actually, there is probably a cost due to mailing out the notices.

[Initech]

8. No such thing as free anymore.

[customerserviceguy]

9. Interesting

When a bank offers "bonus" interest, or some sort of cash incentive for people to open an account, it has always been reported as interest. The difference between that and free miles for a credit card account is that merchants are paying the fees for rewards, that are in effect rebates on the products. If you buy a car from GM, and they give you $1000 cash back, that is not income, but is considered a reduction in the cost basis of the automobile for depreciation purposes, if that is applicable to your tax situation.

Not currently practicing, but I used to be an Enrolled Agent back in the Eighties.