Here's an interesting twist on using FFP miles on business travel. I've never done anything like this, but I'm curious to think what others think of the ethical and legal (income tax) implications.

Suppose my company needs to fly me somewhere, and the ticket costs $1,000. I book the flight (paid for out of pocket by personal C/C, to be reimbursed). Knowing that this trip is very unlikely to get canceled, I go ahead and book a trip to the same destination with 25,000 FFP miles. Maybe it's on the same airline; maybe not. Maybe the departure and return times are not precisely identical, but I structure the travel so that the company will get the same amount of work time from me at the destination. (That is an important point.) Any incremental travel costs associated with the alternate itinerary, such as extra night of hotel stay, I pay out of pocket.

I've just effectively converted 25,000 FFP miles into $1,000 worth of fare basis exchangeable for other travel on the same airline. (Granted, the $1,000 worth of fare basis isn't nearly as liquid as $1,000 cash, but if I know I travel a lot on this airline, it's almost as liquid. There are also issues about whether the fare basis can be applied to more than one itinerary later, which may also reduce liquidity, but let's ignore those logistics for now.)

- Is this fair to the airline? They probably don't really care about this kind of thing on an individual basis. While their intent is to get business travelers with their relative price inelasticity to pay higher prices by how they structure fares, I haven't violated any rules of carriage. If millions of people started doing this regularly, they'd probably look to structure their rules differently to block it en masse in the future, but I don't expect that an individual would get into trouble for doing this.

- Is this fair to the company? They paid the same amount of money for my travel that they otherwise would have; they get the same amount of work out of me that they otherwise would have. I feel kinda funny about the situation, but I sort of think that the company isn't being cheated here.

- Is this legal? Should the $1,000 then be somehow counted as income? Probably not, but you never know with the IRS, which gets to presume you guilty until proven innocent.

Thoughts?

Do your thoughts change in the following alternate scenarios? (Call my initial scenario Scenario 1.)

- Scenario 2. Since I paid for the $1,000 ticket out of pocket, what if it was a refundable ticket and I have it refunded to my C/C 11 months later, before the fare basis expires, but still had submited the initial purchase for reimbursement? (This definitely seems slimier, but I can't quite decide why. The company is no better or worse off, really. The airline is out the $1,000, but they're not entitled to the $1,000; on a refundable ticket, they should only get the $1,000 for actually delivering the services, and I never actually used the services purchased with that $1,000.)

- Scenario 3a. What if I purchased a $300 ticket (with a Saturday night stay-over, let's say) instead of using 25,000 FFP miles?
- Scenario 3b. What if I also then ask for the $1,000 refundable ticket to be refunded?
Then there are no miles involved at all, just an extra $700 in my pocket. Assume that the company policy is not to ask employees to stay over Saturday nights on business trips.

Looking forward to a lively thread.

> Is this fair to the company?

You earn a gold star for cleverness.
Nonetheless; you may want to have
already lined-up alternative employement.
Many employers would consider this
forgery of an expense report and grounds
for termination.

If you like your job and hope to collect
your retirement, it is probably wise to
submit your proposal in-writing to HR and
get their (approval/agreement?) response
in-writing.

-doug

I agree with Doug. The airlines probably could care less about some of these scenarios (since they can always add more restrictions to award tickets), but I am sure your employer would have a major problem. Having said that, I am sure some travelers already launder their miles like this.

I know of many companies that will split the difference in cases like this.

Just addressing the tax point, the value of the ticket that you received from your employer but did not use is absolutely taxable income (and subject to payroll taxes, too). This is not even debatable, as a matter of tax law. Cash and in-kind payments that you receive from your employer are deemed to be compensation in the absence of evidence to the contrary. The fact that you, in effect, traded your frequent flyer miles for the $1000 ticket is not helpful, because your basis in the frequent flyer miles is zero, and the value was never taxed.

Of course, because your employer doesn't know what you did, it cannot report your income accurately on your Form W-2. The employer is theoretically subject to penalties for inaccurate reporting, but your deception would almost certainly be considered good cause for the error.

Doesn't your employer require you to turn in used airline tickets? Mine does.

Bruce

A neighbor did precisely what you're talking about and supplemented his income quite nicely, but when his employer found out he got in major hot water. The employer considered it fraud. So if you're going to do it, be sure to clear it with your employer first.

I too agree with Doug!

Who is paying for the tickets that earn you the mileage?

I am not sure my conscience would allow me to do this. Considering the fact that 95% of my frequent flyer miles are from work related, its just asking too much. I think I agree with the sentiment of most of the responses.

I work for an accounting company and I am required to submit original airline receipts. When I don't use a ticket, the travel agent I'm required to use needs the paper ticket back to process a refund with any nonrefundable tickets receipts stamped "exchanged" and returned to me. I am then billed for any additional amount to cover a new ticket the nonrefundable didn't cover. My travel policy addresses any use of personal ff miles as "a gift to the company" and not reimburseable in any manner. Charging a company for an airline ticket and subsequently pocketing the money is criminal fraud. A couple of years ago a bunch of baseball umps were caught cashing in their union contracted first class tickets and getting coach tickets instead. Why not do the same with buying a discount airline fare and charging the full fare of the expensive airline? Why not drive and say you flew? All these are the same type of fraud. Not buying or using the least expensive travel within your company guidelines is unethical. Pocketing any gains from it is illegal.

My travel policy specifically allows for this type of scenario, but compensates me for only 50% of the ticket value and only up to $1000. So if I fly my typical $2400 transcon using my miles, I can file for reimbursement of $1000 on my expense report. The catch is, as already stated, this is taxable income and my company does not gross up the taxes. So, by virtue of living in such a place as NYC (not a tax-haven by any means, believe me!), I'll see about $600 of that money.

We can also get a 25% rebate by flying Coach rather than Business on int'l flights, based upon the difference in ticket price and again subject to a $1000 cap. So a $1500 Coach trip, compared to a $5000 Business trip, would gross me $875 and net me about $525.

They're both interesting propositions, but frankly neither is worth the relatively small amount of extra income I'd gain.

I would, though, echo the concerns of others about doing this kind of thing without your employer's permission. They would almost certainly frown upon this and I'd imagine many would find it grounds for termination.

You're opening your company(and I doubt they'd be happy about this) and yourself to IRS problems.

Since your company would be deducting the $1000 as a business expense, one that wasn't incurred, since miles were used. The IRS clearly states in several of their publication that airline award tickets are NOT a deductable business expense.

You're also not going to be getting a 1099 or W2 for this $1000. I think this would be a clear case of tax fraud. The IRS could go after you for $1000, and your company for deducting a non-existent expense.

As for the buying both the $300 and $1000 ticket deal. People have been fired and nailed by the IRS for that scam. In fact I think a bunch of NBA refs got nailed on such a deal a few years ago. In that case they were for tax fraud and grand theft.

According to IRS regulations, use of FF miles which are reimbursed - directly or indirectly - are considered taxable income if the miles were accumulated for business. This would include miles paid for by you, and then reimbursed, or miles taken as a tax deduction. Many companies will reimburse equivelant value for miles, but with hold the income tax from the reimbursment.

Check with your company on their travel policy.

Well you got me thinking... how about travel that you received a refund voucher for... say personal trip.. refunded back with American or United travel voucher..

You then apply that to a future business trip and expense the whole amount ($$$ plus voucher)... what is anyone's take on this?

(Sorry I get thinking of scenarios when these things get posted).

The IRS's take(opinion actually) is that if you don't pay for the trip with $$$$ it is not expensible, and if you're reimbursed for anyone type of coupon/voucher/miles etc, the reimbursment is taxable income.