MilesBuzz! - Frequent Flyer Award Brokers

If I am psoting this in the wrong place, forgive me. An email has come to me from a person professing to be a Frequent Flyer Award Broker. I have not responded because I really do not know what these people do (he says that he is a rarity in this country (yours' or mine, I know not), or whether I want to get involved.

Can somebody advise me please?

Generally, the advice is STAY AWAY from these kind of folks. Participation in such schemes generally violates the terms of your frequent flyer program and can lead to "sanctions" including loss of points, membership, status etc.

I'm with BB! http://www.flyertalk.com/forum/smile.gif

This subject has been debated in several other posts. Take a look at the American thread (upgrades for sale on Ebay) for the most recent one.

Here's at least two reasons why you might want to beware:
I know many people that have sold awards to brokers and never received the money from the broker for the awards sold. Lost in the mail, etc. until you give up. What do you do? Complain to an airline that the awards you sold weren't paid for and will they put a stop on the award use? Call the cops who in the line of investigation will talk to the airlines to establish value and remedies? I don't think so.

Also, these brokers are always living life with a rearview mirror. Airlines are constantly shutting them down and guess what the first thing the airlines do? Yep, get ahold of the customer list, both buying and selling and a little clecrk goes through the seller list and tags all those accounts. They also trade these lists with other airlines. I don't think you want to appear on any list.

So, there's a few things to be wary of. Tip: most of the deals done these days are among private parties; friend-to-friend; business associate to business associate, etc. Less of a problem and much cleaner, though "trading" is far more popular than selling.

Thank you all. I suspected as much. I am not sure if I made it clear that this was an unsolicited approach. I do not want, I never have wanted, and do not think that I will ever want to sell my miles. I can only think that the person concerned got my email address from my profile here. I was addressed as "Dear Frequent Flyer".

I really appreciate the concern of you all. I had never heard of such people. I actually want to use my miles myself, and have no intention of putting myself in jeapody with the providor. I posted as much as anything for others as well. I would be suprised to learn that I was the only target.

Many Thanks to all especially you Randy


Paul

Ways to dispose of miles.

Book award travel for someone.

Charity.

Arrange with your company to have them reimburse you through using them.

For United, Delta and American, turn them into DC points.

Dumb Question..What are DC points?

uhh.. Diners Club

Originally posted by PAUL PALMER:
I do not want, I never have wanted, and do not think that I will ever want to sell my miles.

I've looked at award bookers' websites out of curiosity. Seems that even if you were interested in selling your miles, you get a REALLY raw deal: they pay on the order of a penny a mile. So there's another reason not to sell your miles to those people, in addition to the ethical reasons and the possibility of being caught by the airlines.

Depending on your tax bracket, you could probably do better than a penny a mile by donating a ticket to charity (like the one that flies cancer patients to treatment centers) and then taking a tax deduction.

Originally posted by pynchonesque:
Depending on your tax bracket, you could probably do better than a penny a mile by donating a ticket to charity (like the one that flies cancer patients to treatment centers) and then taking a tax deduction.

In the USA, there is no deduction for donating miles, I am pretty certain. (Nor is there tax on acquiring them or redeeming them, beyond the PFC's on the routing--although partners that buy miles from airlines to give out do have to pay tax.)

That is correct. At least in the US, you cannot take a tax deduction for the donation of ff miles. Reason being that your "basis" in the miles is zero, hence, you have zero to donate (officially at least).

Still, it would be a nice touch to donate miles that you will not be using.

I'd just as soon stick with no accrual tax and therefore no deduction!

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"Sire, it is not a revolt. It is a Revolution!"

Randy, do you really think that an airline can purge your account if you were selling miles in -another- airline's account?

I don't believe the rules (however flimsy they may be) for FF accounts states that violations in another program void you in that program.

Said brokers advertise in the classifieds of USA Today. I sold a 20K award to a Miami broker for $300. A few months later I tried to sell one to an Idaho-based broker, booked it as an E-Ticket 8 days adv., didn't get a check, so I called the airline the eve. before the AM flight to cancel. I was out the $35 fee but saved my miles.
I tried to complain to IDaho Atty. Gen., but I had no name, only a phone #.
Above points are right--if they cheat you, you have little recourse. It's like going to the cops to report that your dope has been stolen.
BTW, if you sell/give to a friend, include a birthday/Christmas note from yourself to the flyer. Just in case the airline ?s something.

An FF program is like a private club, or like being invited into someone's home. They can kick you out at any time, for any reason. (I'm not sure if "protected classes," e.g. race, gender, etc apply here? Any lawyers?) If they wanted to, they could kick you out because of the way you looked at the FA the other day. It has been made quite clear by all the FF programs: you do NOT own your miles (just like you usually don't own your credit card nor your driver's license).

Whether they actually WILL kick you out for such a violation is probably dependent on the personality and vindictiveness of the person in charge.

Originally posted by Tino:
I don't believe the rules (however flimsy they may be) for FF accounts states that violations in another program void you in that program.

Here's a thought:

"Travel the world for the price of a newspaper ad"

I suppose "brokers" could just be individuals funding personal trips.

pynchonesque has just provided the best reason yet for selling miles. If these programs are looking at unethically stealing their miles back for any "infraction" that they deem fit, then we shouldn't feel bad for selling them.

As for the "private club" concept, why are AA and the others trying to make their miles the currency of the new millenium? Doesn't sound too exclusive to me...

Here's an interesting point.

Since the brokers have no legal recourse against you, what (besides ethics) stops you from canceling the reservation even if they do send you a check?

Originally posted by Brendan:
I called the airline the eve. before the AM flight to cancel. I was out the $35 fee but saved my miles.
I tried to complain to IDaho Atty. Gen., but I had no name, only a phone #.
Above points are right--if they cheat you, you have little recourse. It's like going to the cops to report that your dope has been stolen.

Originally posted by Butcher Bird:
That is correct. At least in the US, you cannot take a tax deduction for the donation of ff miles. Reason being that your "basis" in the miles is zero, hence, you have zero to donate (officially at least).

Still, it would be a nice touch to donate miles that you will not be using.

Has anyone challenged the IRS on this in tax court? I've been wondering about this since someone said Pudding Guy we given a hard time for donating Pudding that cost him nothing because of the value of the miles he received. It seems like the IRS wants it both ways -- the miles have value when figuring the basis of the pudding, but no basis of their own? Also, what should the basis have to do with it anyway? I always thought deduction were based on fair market value of the donated item. If I find a gold ring on the ground and donate it to charity, don't I get a tax deduction on the rings value? If a painting appreciates in value before I donate it, don't I get to deduct the full fair market value, regardless of my basis?

possibly.. it's been discussed a lot the past few years.. there was a bill introduced by Barbara Kennelly of the House Ways and Means Committee that proposes frequent flyer miles should not be subject to tax. This proposition rests on the complexities of determining the timing, valuation, and administration of taxing frequent flyer miles.. it was H.R. 533.. there are a decent number of articles out there as well dealing with the topic.. i have links to a bunch of them but without a lexis subscription they're not worth much..

Originally posted by dhacker:
It seems like the IRS wants it both ways -- the miles have value when figuring the basis of the pudding, but no basis of their own? Also, what should the basis have to do with it anyway? I always thought deduction were based on fair market value of the donated item. If I find a gold ring on the ground and donate it to charity, don't I get a tax deduction on the rings value?

There are cases where you are limited to basis in the property (specifically, if you would have ordinary income--as opposed to a capital gain--if you sold the item for fair market value). But in general, yes, you get fair market value for charitable contributions, so the question at Pudding Guy's audit should be, what would a hypothetical willing buyer and seller have agreed to as the price? (My vote would be wholesale price, given the quantities involved.)

Sorry to have sent this thread so far off topic, but ... I would think the obvious answer in Pudding Guy's case is that the willingly paid price is exactly what he paid for the pudding. The store he bought it from presumably priced it to sell as pudding, regardless of the mileage promo that didn't even appear on the all the Healthy Choice packaging. I'm sure plenty of "normal" buyers bought at that price (until Pudding Guy wiped them out). The fact he bought alot at that price only indicates that he may have been willing to pay even more -- not less like a wholesale price.

Anyway, it seems we still have most people (and FF programs for that matter) claiming that there is no tax deduction for donating miles. But the only explanation offered is that there is no basis in the miles, which is irrelevent. The fair market value is what matters and miles clearly have a fair market value. Companies pay upwards of 2 cents per mile for quantities at least as high as a typical donation. So, why can't we take a 2 cent/mile deduction???

AAAAACK! I don't WANT to get a tax deduction on miles I donate...because I guarantee that as soon as they allow that, they'll also start taxing them, and I DON'T want that more than I WANT the deduction!

They already tax frequent flyer miles.

If you win miles in a contest, I believe there is tax to paid a the fair market value. Also, there is a tax on miles purchased by program partners.

dhacker: while you pay a tax it is not an income tax on them, i.e.: paid on them april 15th or so.. rather it is a transportation tax.. two very different things.. allowing for a tax deduction for them thus makes them taxable as well.. you cannot have one and not the other.. if this occurs..

1. frequent flyer miles earned by an employee while on employer paid travel would thus be taxable as income to the business traveller..
2. miles earned are actually a reduction of the purchase price and thus not really an earned benefit..
3. all the miles earned on credit cards, etc. shouldn't be taxed to the individual unless he/she actually paid the bill and was not reimbursed by their business..
4. many miles go unusued and expire every year so how do you tax these??

these are some of the concerns and reasons for the IRS to not tax the miles as income.. as such.. you cannot take a corresponding deduction for their fmv or any other basis you might like to claim they have..

Ok, I agree with the logic of leaving well enough alone so they don't tax all our miles.

But would it be deductable to donate an actual award ticket? Certainly a ticket has value, and my basis in it seems to be irrelevent. Any opinions from our resident tax experts?

This issue has real implications for me. My religious organization does a lot of charity work in El Salvador and I have nearly a million LatinPass miles and Taca flies non-stop from IAD to SAL. I could book the actual tickets for volunteers heading down there. I'll probably do it anyway, but a tax deduction would make it even better.

The allowed deduction for a non-cash charitable contribution is the basis of the item (ie how much you paid for it) or the Fair Market Value (the current price a willing seller and buyer would sell/buy the item for) which ever is less.

Since the basis of FF miles is $0, the charitable contribution is $0. If you purchased miles which you then gave to charity, you could deduct the purchase price or the FMV (1 - 2 cents / mile) which ever was less.

RBT

Regarding the tax deductibility or value of miles: If you want to make a donation to AmFAR through ClickRewards, look at how high a value (apparently) the IRS puts on the miles you would accrue:

Your contribution is tax deductible except for 3 cents per ClickMile earned.

3 cents! Astronomical.

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Life's a banquet, and most poor suckers are starving to death!

All miles sold by the airlines to third parties are taxed at around 7%. You can see this on the tax lines of your phone bill or car rental if you are recieving miles for these services.

Miles awarded by the airlines to its passengers are currently not taxed but the IRS is working on that one.

Honest mileage brokers will have you claim an award certificate for a certain award and send it to them COD. This is the only way to make sure you will get paid for your miles. Becuase the miles are in a certificate form, you will be unable to call up the airlines and cancel it.