[Consolidated] 1099s for miles & cash rewards from all banks
Feb 24, 2011, 3:55 pm
#61
Join Date: Sep 2009
Posts: 1,758
Feb 24, 2011, 4:36 pm
#62
Join Date: Mar 2009
Location: left coast
Posts: 45
If the IRS begins enforcing that miles have a fair market value
of 2 1/2 cents each, then the solution for some may be to donate them
to charity. For example, in high tax states like California and New York,
combined fed + state tax rates can exceed 40%, so perhaps they
are worth a penny per mile when donated, or about what they are
worth as the Delta or United "bid price" for their respective
"pay with miles" programs.
of 2 1/2 cents each, then the solution for some may be to donate them
to charity. For example, in high tax states like California and New York,
combined fed + state tax rates can exceed 40%, so perhaps they
are worth a penny per mile when donated, or about what they are
worth as the Delta or United "bid price" for their respective
"pay with miles" programs.
Feb 24, 2011, 6:17 pm
#63
FlyerTalk Evangelist
Join Date: May 2001
Location: LAX; AA EXP, MM; HH Gold
Posts: 31,789
Citi is motivated to report a high value on the 1099s for the deposit accounts (where the miles are the same as interest) in order to avoid IRS penalties for undervaluing the miles awarded as interest.
I haven't looked at the Code and Regulations on this issue recently, but I doubt the tax code penalizes payors for overvaluing the property paid as interest like it would if the payor undervalued the property. So Citi fulfills its obligations under the 1099 rules by submitting an outlandishly high retail value for something it bought from AA for probably a penny a mile or so. And if the taxpayer (Citi's customer) disputes the value, then the customer is free to argue with the IRS over the valuation of the miles, the same way you're free to argue with the IRS over any other non-cash income that is reported to the IRS.
If you win a new car in a contest, does your 1099 show the sticker price, the invoice price or some other price? Most contest sponsors send the IRS and the winners 1099s that show the approximate retail value (ARV) of the prize and leave the argument over valuation to the winner and the IRS.
Again, you're free to argue valuation with the IRS, but Citi couldn't care less about your disagreement over the value of the miles. It's satisfied its tax obligation.
In light of all this, bonus miles from credit card issuance looks like a much better deal since Citi does not report those miles as income (as they are a rebate as discussed above).
I haven't looked at the Code and Regulations on this issue recently, but I doubt the tax code penalizes payors for overvaluing the property paid as interest like it would if the payor undervalued the property. So Citi fulfills its obligations under the 1099 rules by submitting an outlandishly high retail value for something it bought from AA for probably a penny a mile or so. And if the taxpayer (Citi's customer) disputes the value, then the customer is free to argue with the IRS over the valuation of the miles, the same way you're free to argue with the IRS over any other non-cash income that is reported to the IRS.
If you win a new car in a contest, does your 1099 show the sticker price, the invoice price or some other price? Most contest sponsors send the IRS and the winners 1099s that show the approximate retail value (ARV) of the prize and leave the argument over valuation to the winner and the IRS.
Again, you're free to argue valuation with the IRS, but Citi couldn't care less about your disagreement over the value of the miles. It's satisfied its tax obligation.
In light of all this, bonus miles from credit card issuance looks like a much better deal since Citi does not report those miles as income (as they are a rebate as discussed above).
Feb 24, 2011, 6:45 pm
#65
FlyerTalk Evangelist
Join Date: Jul 2003
Location: Florida
Posts: 29,755
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.
I searched FT about 10 days or so ago and unearthed a thread started in 2002 about a guy who won the grand prize and was told he would get a 1099. I posted the link of that old thread on the other concurring 1099 related thread right on this forum.
Here you go - the search results are posted in my post on the 5K Saving Account Bonus thread where people reporting receiving 1099.
http://www.flyertalk.com/forum/15805922-post243.html
Excerpt of my post:
In 2002:
http://www.flyertalk.com/forum/miles...nner-aa-4.html
1099 issued for $20,000 for his 1 million miles.
This thread has lots of instances from different merchants on the taxable value of miles. Plus a poster seemed to be an IRS agent and posted the view point in that capacity. Y'all may want to really read the post no.53 of the above thread.
It is just too bad the OP of that thread did not come back to update the situation after he posted he would have an appointment with his accountant the next day and would inform the readers of the outcome. Well, he never came back to tell people what the accountant said!
Another thread that is dated in 2005, AA valued the winning at 0.25 a mile.
http://www.flyertalk.com/forum/miles...eepstakes.html
I also remember reading a story way way back about a guy bitterly turned down the sweepstakes winning of 1 million miles because it would cost him a huge tax bill. He wrote an article on it, titled as "Why I turned down the sweepstakes grand prize" or something like that. That was like a year or more after his winning and unsuccessfully tried to avoid the tax liability.
So the option to negate the tax bill is to give up the miles. But it is probably not easily done with Citi versus a sweepstake winning with AA.
Last edited by Happy; Feb 24, 2011 at 7:54 pm
Feb 24, 2011, 7:04 pm
#66
FlyerTalk Evangelist
Join Date: May 2001
Location: LAX; AA EXP, MM; HH Gold
Posts: 31,789
Here's a thread discussing a guy who refused an AA prize of 12 round-trip tickets that AA valued at a stunning $52,000:
http://www.flyertalk.com/forum/ameri...-declines.html
When you win a non-cash prize (car, motorcycle, house, etc) in a contest, in certain cases, the contest sponsors must collect 20% of the value from the winner and remit it to the IRS as withholding. That causes non-cash prizes to be turned down rather frequently, especially when the contest sponsor provides an alternate cash prize (which is always accepted).
http://www.flyertalk.com/forum/ameri...-declines.html
When you win a non-cash prize (car, motorcycle, house, etc) in a contest, in certain cases, the contest sponsors must collect 20% of the value from the winner and remit it to the IRS as withholding. That causes non-cash prizes to be turned down rather frequently, especially when the contest sponsor provides an alternate cash prize (which is always accepted).
Feb 25, 2011, 2:53 pm
#69
Join Date: May 2008
Programs: AA PLT 2MM
Posts: 2,026
Actually AA did. And it is not something just happened - in that thread I unearthed, someone reported he won 100K miles from a Supermarket contest and he received a tax owed valued those miles at 0.02.
I searched FT about 10 days or so ago and unearthed a thread started in 2002 about a guy who won the grand prize and was told he would get a 1099. I posted the link of that old thread on the other concurring 1099 related thread right on this forum.
...
I searched FT about 10 days or so ago and unearthed a thread started in 2002 about a guy who won the grand prize and was told he would get a 1099. I posted the link of that old thread on the other concurring 1099 related thread right on this forum.
...
Thanks for the stroll down memory lane
Actually since I wasn't a member of FT at the time, more like a history lesson.
I've actually spent a few hours reading those old threads, interesting stuff. I actually remember that AA contest for the 12 round trip tickets. I think I'd forfeit the prize as well had I won.
Feb 26, 2011, 3:00 am
#70
Suspended
Join Date: Jul 2001
Location: Watchlisted by the prejudiced, en route to purgatory
Programs: Just Say No to Fleecing and Blacklisting
Posts: 102,095
Feb 26, 2011, 3:19 am
#71
Suspended
Join Date: Jul 2001
Location: Watchlisted by the prejudiced, en route to purgatory
Programs: Just Say No to Fleecing and Blacklisting
Posts: 102,095
Citi is motivated to report a high value on the 1099s for the deposit accounts (where the miles are the same as interest) in order to avoid IRS penalties for undervaluing the miles awarded as interest.
I haven't looked at the Code and Regulations on this issue recently, but I doubt the tax code penalizes payors for overvaluing the property paid as interest like it would if the payor undervalued the property. So Citi fulfills its obligations under the 1099 rules by submitting an outlandishly high retail value for something it bought from AA for probably a penny a mile or so. And if the taxpayer (Citi's customer) disputes the value, then the customer is free to argue with the IRS over the valuation of the miles, the same way you're free to argue with the IRS over any other non-cash income that is reported to the IRS.
If you win a new car in a contest, does your 1099 show the sticker price, the invoice price or some other price? Most contest sponsors send the IRS and the winners 1099s that show the approximate retail value (ARV) of the prize and leave the argument over valuation to the winner and the IRS.
Again, you're free to argue valuation with the IRS, but Citi couldn't care less about your disagreement over the value of the miles. It's satisfied its tax obligation.
In light of all this, bonus miles from credit card issuance looks like a much better deal since Citi does not report those miles as income (as they are a rebate as discussed above).
I haven't looked at the Code and Regulations on this issue recently, but I doubt the tax code penalizes payors for overvaluing the property paid as interest like it would if the payor undervalued the property. So Citi fulfills its obligations under the 1099 rules by submitting an outlandishly high retail value for something it bought from AA for probably a penny a mile or so. And if the taxpayer (Citi's customer) disputes the value, then the customer is free to argue with the IRS over the valuation of the miles, the same way you're free to argue with the IRS over any other non-cash income that is reported to the IRS.
If you win a new car in a contest, does your 1099 show the sticker price, the invoice price or some other price? Most contest sponsors send the IRS and the winners 1099s that show the approximate retail value (ARV) of the prize and leave the argument over valuation to the winner and the IRS.
Again, you're free to argue valuation with the IRS, but Citi couldn't care less about your disagreement over the value of the miles. It's satisfied its tax obligation.
In light of all this, bonus miles from credit card issuance looks like a much better deal since Citi does not report those miles as income (as they are a rebate as discussed above).
I ask this question because I'm curious if it would be acceptable to the IRS for a non-governmental party to actually report to the IRS "AA miles" as income in mileage denominated amounts without providing a USD currency-equivalent value.
Last edited by GUWonder; Feb 26, 2011 at 3:24 am
Feb 26, 2011, 7:09 am
#72
Join Date: Mar 2010
Programs: AA EXP, Marriott PLT, Sheraton Gold
Posts: 27
Nominee Interest?
I can't find the exact post but it has been mentioned to list the full value of the 1099 and then discount it as nominee interest to bring the value to whatever level you can justify should uncle sam question you on it.
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
Feb 26, 2011, 8:25 am
#73
Join Date: Jul 2009
Posts: 90
I can't find the exact post but it has been mentioned to list the full value of the 1099 and then discount it as nominee interest to bring the value to whatever level you can justify should uncle sam question you on it.
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
Feb 26, 2011, 8:47 am
#74
Original Member
Join Date: May 1998
Posts: 1,139
I can't find the exact post but it has been mentioned to list the full value of the 1099 and then discount it as nominee interest to bring the value to whatever level you can justify should uncle sam question you on it.
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
My question is that a 1096 is normally required when you designate a nominee and the creation of another 1099 is necessary to let the IRS know who actually is responsible for the interest. Do you just skip this process (mark nominee without actually submitting a new 1099) or even better, how about creating a 1099-INT for interest income (naing citi) and mailing it back to citi. Now they have a tax liability
Thoughts on how to proceed here?
I really wasn't thinking of nominee interest, I was using an analogy. You are correct that nominee interest raises issues relating to us issuing 1099s.
The examples provided in the links to the other threads provide examples in the 1099-MISC scenario. The examples show a description next to the subtraction of "FMV adjustment for gift" or something like that. You should read it before proceeding. I wish there weren't three threads on this topic. There isn't specific wording for a subtraction of Schedule B for interest income.
There are examples of subtractions on Schedule B that don't require the issuance of 1099s by the person taking the subtraction. Accrued Interest Purchased on Taxable Bonds is an example. So I don't personally think the existence of a valid line on Schedule B with a valid negative amount is a red
flag if a proper description is given.
Feb 28, 2011, 10:53 am
#75
Join Date: Mar 2007
Location: SBA
Programs: AA PLT, SPG PLT, Hyatt Diamond
Posts: 256
I find this incredibly irritating and plan to close my account this week. I earned the first 15k at some point last year but have yet to receive a 1099. Should I still expect it? (We're sending our tax info off this week to the accountant)
Does anyone have the address/email of someone to whom we could write to complain about this policy? I'd like for them to know why I'm closing my account--beyond just telling the branch manager.
Does anyone have the address/email of someone to whom we could write to complain about this policy? I'd like for them to know why I'm closing my account--beyond just telling the branch manager.