Happy

Of course, you should be angry.

My post has nothing to do with the 1099 Citi issued. It is to answer Mountain Trader's post about with the tax factored in, it would be of no value to him for obtaining AA miles through such mechanism. That is the where me and Mountain Trader are "guilty" of deviating to the OT path.

My point is, if one use AA miles in certain ways, then after paying the taxes, the AA miles still brings value to the table versus what Mountain Trader's situation and his reasons about why it is so, including the reasons why he deeply discounts the miles utilization value.

Sorry about the OT. Again it has nothing to do with the legitimacy of 1099. I simply accept it as a fact and based on that premise to analyze whether AA miles with such cost can still worth it or not. To me, it might be worth it if the net cost is at 0.015 or below cost. That means if one is in the 50% bracket (incl the stat tax), this would mean 2 x 0.015 = 0.03 value. Citi gives a 0.025 value. Therefore, it is a cost one does not like, but it is a cost that may be acceptable depends on one's situation.

It really has nothing to do with the 1099. It is a plain Profit / Loss analysis.

Mountain Trader

Happy-

I'm pretty confident in how far my current stack of miles will take me using today's awards. Five years is the low estimate, and it continues to grow. Paying hard tax dollars for more is not in the cards for me.

Your other points accurately recount the past, but my biggest discount is for the unknowns in the future, compared to cash (about which the unknowns are few). The celebrated investor John Templeton once said that the four scariest words in investing are "It's different this time", and I am sure that stockholders in Bear Stearns and Lehman Brothers would agree.

Risks that can't be computed haven't disappeard. They just can't be measured.

gunpig

I called the IRS this morning and spoke with a tax agent (who also confered with her supervisor) and they informed me that their system doesn't allow a letter to be generated for correction of a 1099-INT only other forms of 1099. She also said the Form 4598 is obsolete as previously discussed. She said my only recourse is to correct with the merchant, file the full amount to avoid audit, and file a complaint with the Dept of Labor (clueles on why I'd get sent down this path).

I get the feeling I'm hosed without recourse here!

Has anyone found the magic words to use with the IRS to get them to engage with Citi?

yuryc

I'll be closing all my CitiBank accounts the day CD matures - May 18, 2011

Andy2

The IRS probably isn't the way to go here. The phone rep. was correct in that we must deal with Citi. If that doesn't work the other thread on this subject has links as to how to present the "correct" amount on the return.

For a 1099-INT, it might not be so bad. Presumably, the full amount of interest would be reported on Schedule B using "Citi" and the next line on Schedule B would also be listed as "Citi" with a negative amount for the portion of "interest" that does not represent the value received. At least this is how it is done when someone receives a 1099-INT for the full amount of interest in a joint account and the other account holder reports his/her portion. The negative amount is pretty standard and hopefully won't draw too much attention, since the gross amount clearly appears on Schedule B and a lot of filers have "subtractions" on this schedule. Maybe this won't draw a manual look by the IRS, but no one knows for sure.

The 1099-MISC is actually more worrisome. The gross amount on the Form 1099-MISC needs to show up, so presumably a schedule needs to be attached reflecting the gross amount and the subtraction needed to arrive at the correct net income. Since this is a supporting schedule rather than a specific form, the IRS matching system will flag it and someone will have to look at the supporting schedule. Probably no big deal since everything is reflected, but still undesirable.

Happy

My last OT post. Sorry Andy2 but this would be it.

There is no absolute certainty to the future, everybody knows that. It is almost a moot point because it is the fact that no one, Sir John included, can tell exactly how future would turn out. All one can go by is a probability analysis based on past, current and some known but not accurate factors in the future.

And certainly the analysis completely depends on one's own financial situation - whether one is very risk-adverse or one is a moderate risk taker or one is going for high risk high return theory - that is, in the financial world. Or, some are just plain naive. You can add the investors or employees of the companies like Enron, Worldcom and countless highflyers in the 2000 bubble on your 2 names short list about how they had lost their shirts by miscalculate the future outcome or simply being dumb / naive / gullible... (endless adjectives can be appended here...

However, you can also see how investors in the names such as PCLN, NFLX, BIDU, and a long laundry list have been obscenely rewarded by their risk-taking.

Still, to equate an investment to a cost paid to acquire miles is a case way way overkill, to me anyway.

After all, how much hard earned tax $ we are talking about here? A few hundreds? A thousand? That depends how many mile bonuses you acquired and also which tax bracket you are in. I seriously doubt anyone posting here would incur a tax bill of a thousand related to Miles. It is the tax owed, not the taxable value. I am sure everyone understands the difference.

The absolute amount in the big scheme of things, is small enough to be ignored.

It is the rub on the emotional side gets to people, me included as it seems so "wrong" to make miles taxable. Not to mention that 99% of folks have gone in this without any idea that they would eventually owe taxes and have to pay their own $ on the tax owed. So all of a sudden, those miles are no longer free - they carry a cost.

Incidentally I knew about the taxable nature by way of being lured to open a saving account at our neighborhood BofA branch years back and was quite surprised to receive a 1099 on that measly $25 bucks account opening check... Did some research, learned the matter and stayed away from banking product bonuses ever since.

But if one sits down and does an actual cost / profit analysis, it may not be all bad. This analysis should be done BEFORE one gets into the deal. I did it several years ago when Citi kept offering bonuses on TYPs and Miles for opening "free" checking accounts and saving accounts. I decided that I didn't want to deal with 2 major headache - to make sure Citi post the bonuses as promised AND to deal with reporting additional taxable income derived from bonuses earned on banking products.

Unlike many here who want to pay 0 for their miles and points, I am willing to pay some costs as long as after the costs I can still make out 3x or many times more - because without the miles and points, I will part with much much more my hard earned taxable dollars unless I just sit at home and not going any where.

Andy2, I will stop reply on OT post and let you guys figure out how to sort out this 1099 mess.

thehawk75

What I find quite ludicrous is the value Citi is assigning the points. 2.5 cents per mile?? Wow! Of course, it doesn't help matters that AA themselves in their facebook contest are valuing them at 2.75 cents per mile -- double wow!

I don't argue that points 'can' be redeemed for that value, even more. But, this would be to redeem the points on first class fares and then compare the retail cost of said seat purchase. But, it's a bad comparison, how many actually pay 'cash' for their first class seats? Seems most at the front of the plane are there as a result of being elite status on the airline, or getting some form of upgrade (perhaps paying a small cash/points payment on top of regular fare, using a certificate, what-have-you). The others would have just redeemed the miles for the first class cabin, since paying 6X the cash price of a coach ticket is not for most, but, paying 2X the miles price of the coach ticket to move to the front of the plane is palatable.

Regardless, the value being assigned to the miles is highly subjective, and, in order for them to be redeemed at higher values requires that their liquidity decreases -- and let's face it, the miles are not all that 'liquid' even when trying to redeem on the airline itself. Cash is still king.

As far as what the tax owed on 40,000 miles valued at 2.5 cents per mile goes, obviously that varies as well. I can certainly say that I am extremely happy I was just to 'lazy' to go jump through the hoops that this Citi promotion required, and thus didn't partake. My marginal tax rate on the additional imputed income of $1000 ($0.025 X 40000) would have been between $400 and $500 (oh California how I love thee ). Sure, I bet I can get that 'value' out of the miles, but, it's pretty much a wash if you ask me, if for example I redeemed the miles on a domestic coach non-milesaver fare. It's pretty much like paying the tax man now, in order to get the flight of that value later (yes, I know, and as I've already stated, one can redeem miles at a higher value than that, but, fact is miles can also be redeemed only at this value or worse too).

A real curiosity I have is why Citi arrived at 2.5 cents per mile? I mean, although it's a closely guarded secret, I seriously doubt Citi paid that much for the miles. When they file their corporate taxes are they going to claim a deduction of 2.5 cents for every AAdvantage mile they gave out? Of course I don't see how they can do that when their cost is not that, but, who knows what tax rules they apply, and I'm fairly certain that their tax accountant(s) are far more qualified than mine (which isn't difficult as mine happens to be TurboTax), so maybe there's some way they can do this.

But, if Citi doesn't benefit from this valuation, then what motive do they have for assigning such a high value? It's fairly clear and can be easily shown that convenient and unplanned redemption of AAdvantage miles results in a value far closer to 1 cent per mile. Why not assign that value? Why 2.5X that much? Maybe it's because they were bailed out by the government and still hasn't separated itself from the government teat. Maybe they got some pressure to be the first 'domino to fall' so to speak, and actually be one of the first to issue 1099's on Airline miles? And at such a high valuation... perhaps there's a motive to put pressure on banks like BankDirect? Right now they're a great deal. Add a tax on the miles with a 1 cpm valuation and BankDirect is not such a great deal, make that tax with a 2.5 cpm valuation and BankDirect's flagship product is suddenly completely uncompetitive. Ok, all of this is just random speculation, not trying to stir the conspiracies here... but, I don't consider this implausible.

Happy

The 0.025 is the "retail" regular price AA sells miles, and is the price on points.com cited by the Citi rep as posted by someone up thread.

I totally agree with you that the taxes greatly reduce the attractiveness of such a "deal".

Given my prior experience with Citi on bonuses other than sign up bonuses, I am actually surprised many seem to have gotten their bonuses relatively painlessly or even automatically. It used to be like pulling teeth from tiger's mouth!

It took me 9 months to get my referral bonuses on TPY accounts from 2 successful referrals and at the end it took a supervisor with authorities to make it happen right on the last phone call. Yet, a couple months later I got a formal letter denying the bonuses - despite the bonuses already posted. Luckily they stayed and not being revoked. This one and the only experience has kept me away from any bonus promotion Citi has other than the initial sign up bonus. The subsequent headache in follow up simply is not worth it.

The older promotion of 10K or 20K opening checking account threads are full of people's grievances about they had to keep calling to get their bonuses months after promised time frame.

The recourse in changing the 1099 value is the merchant issuing a revised 1099. I dont know if one is willing to contest this value directly with IRS and waste even more time on this matter.

thehawk75

Which is why, aside from someone wanting to do a top off so they can immediately redeem a bunch of existing miles sitting in their account, or reset their mile expiration timer, no one buys miles at 'retail' from AA, and certainly not in bulk at the retail pricing. Well, I can't assertively claim 'no one', but, certainly no one who thinks like me.

I certainly couldn't imagine anyone buying 25,000 miles from AA for $625, for the purpose of flying from New York to Boston, hell, even from New York to LA (assuming you could even find the award availability to redeem 25K miles, and not in fact require 50K instead).

Well at least Citi was nice enough to use the 'bulk retail' pricing of 2.5 cpm. AA themselves, for the facebook giveaway, are using the 'small lot retail pricing' (2.75 cpm) for the grand prize winners.

As an aside, and hate to deviate us too far off topic, but, I recall a few years ago (actually maybe quite a few years ago now) AA was giving away 1,000,000 miles. Actually they've had a few contests in the past where they've given away that many as a grand prize. Did they seriously generate a 1099 with a figure of $27,500 at that time? How would the contestant winners have paid the tax liability on that? It's not like every potential winner has about $10K of spare cash around. Thus, that leads to the next question, couldn't the damn tax bill be settled in miles at the marginal rate? i.e. you were given 40,000 miles. Your marginal federal tax rate is 33%, you give the IRS 13,200 miles? I doubt of course that Citi will pay you only 26,800 miles instead of the 40,000 and then cut the tax man a check for $330 as a form of tax withholding. At least when I received compensation in the form of stock in a company, I was immediately able to settle my tax liability by having a portion of my stock payment sold and the proceeds given to the IRS. Sadly, it's not like anyone here has the option of liquidating the miles at that 2.5 cent per mile figure in order to use the miles themselves to ultimately settle the tax bill.

Sorry don't mean to hijack this thread, but, just throwing ideas out there... which unfortunately don't seem to have any application to the reality.

QL_714

Why? Many members are claiming they are getting 3, 4, 5 or even 6 cpm. At 2.5 cpm nobody should be complaining. You can’t have it both ways.

thehawk75

Buddy, I'll sell you all my miles I can sell you at 2.5 CPM if you'd like, heck just for you, on sale today for only 2.25 cents a mile. A full quarter of a cent less than what AA charges! Interested?

But, of course your post was to do nothing other than an spark argument.

QL_714

Thanks for the offer but I don't need any miles. I am just stating what numerous members states all the time what their miles are worth. If you want I can list a ton of posts where they state this but I suspect you already know this. And for the record I am not your buddy!

thehawk75

Of course doesn't change the fact you yet again selectively quote my post to convey a slightly different meaning, and then go on to berate me on that slightly different meaning you chose to convey. I wonder if you work in politics? Or at MSNBC?

And for the record, 'buddy' was being sarcastic. If you're going to continue to play stupid, I will help you out with what sarcasm is:

Since you clearly can't quote someone in the proper context (repeatedly) I can only assume you are also clearly incapable of detecting the sarcasm.

QL_714

I post your whole quote, what do you mean selectively?

I in no way shape or form berated you. Don’t try and read things into a post.

I was making a simple post that a lot of members claim their miles are worth 3 – 6cpm and when CITI says they are worth 2.5cpm they start whining. You can’t have it both ways.

Are you the only one that can be sarcastic? I guess my sarcasm flew over your head!

thehawk75

What I mean is exactly that. You chose only to quote the following:

Then ignored the immediate following sentences:
You effectively chose to argue a point that was never the argument, thus your point was irrelevant and pointless. Nonetheless, it's a common theme with you. Either you're doing this deliberately, or, you really do fail to comprehend the larger point being made. I have been giving you the benefit of the doubt and believing you to be intelligent enough to be doing the former, unfortunately that also makes you an as$hole. If you're actually missing the point, sorry for striking back, I will treat you with kid gloves from now on.

Well, actually... you weren't being sarcastic, you were being literal:

But, when has not being accurate ever stopped you from making a comment in the past?



At any rate...

Might as well just address this briefly, since it's the only honest debate point you've ever bothered to bring up:

And to start off, I was also one of the members who said that you can get a value of more than 2.5 cpm (i.e. the immediate sentence following the one you quoted). This doesn't mean that's what they're 'worth'. AA puts controls on their miles to prevent free exchange, but, I can tell you they are no where near worth 2.5 cpm on a liquid market. Before AA started cracking down on eBay. People were selling the miles at about 1 cpm. Actually most never actually sold them due to transfer fee, but rather booked tickets for the amount of miles purchased behalf of the winning bidder, or, simply sold their AAdvantage account in it's entirety.

This is no different than those timeshares, and what they want to sell it for during the presentation. Just because they are asking $13,000 for a week in Los Vegas each year, doesn't mean it's 'worth' that much, it doesn't even mean it can be sold for nearly that much -- ever. Oh, and in the case of timeshares, the secondary market has established them to be worth about 2 and 10 cents on the dollar.

Also no different than selling a $500 home depot gift card. If someone were to pay me in gift cards, and I was expected to settle a tax liability at the full value of the gift card in cash, I'd be rather annoyed. Without getting into cashback portals and other exceptions, no one is going to pay you the face value of the gift card. If you know of someone who is, please put them in contact with me, I can sell them many if they'd like.

So, back to the point about tax liability, since there is pretty little chance one could settle the tax liability through the proceeds of the sale of the awarded miles; AA will let you 'share' (i.e. sell) all 40,000 awarded for a fee of $400. The tax liability for some would be (at a 2.5 cpm valuation) about $450, this ultimately means you've got to get about $850 for the 40,000 miles. Not impossible, but considering many will look at the miles and think 'theres not even enough for two domestic tickets 2 trans con tickets can be bought in most cases for less than that', it does make it a tall order. At the end of the day very few will redeem the miles for the higher valuations. And consider, all this effort to settle the tax liability through the proceeds of sale of the miles themselves would be to merely break even.