Steve_19

The world is fraught with too many people already who read one article on a subject and then consider themselves experts on it. IMHO.

eajusa

There are some topics for which I don't desire expertise. This is one of them. Can't the PTB leave FF alone?

Andy2

NSX is one of the better tax guys on the thread, so it is appreciated when he identifies and posts a scholarly article like this one. Actually reading the Duke guy's article, while trying to ignore his over-the-top opinionated writing style, and reading the University of Michigan lady's article that I referenced above, a person really does get full coverage of all the law pertaining to the taxation (or lack thereof) of points, miles and cash back. Of course, they do not really address Manufactured Spend, including dollar coins, since those techniques are pretty factually specific and so violative of terms and conditions that an academic person would not want to touch them. So a person just has to logic his or her way through the rules when evaluating Manufactured Spend transactions. Honestly, reading these two articles will provide more useful information on the subject than reading through the various FT threads on the subject.

Steve_19

I can believe the OP is one of the more knowledgeable tax persons on this forum (as much as I believe about anything on an anonymous internet forum)

My issue is his stance that claiming reading this article, no matter how well written or scholarly it may be, makes a person an expert on the subject. "Informed" I would say is the better term.

I do completely agree though that this article is much, much more useful then various FT threads on the subject.

nsx

The Michigan article says "Rewards... are not a significant source of income to anyone." Time for these authors to Google "Manufactured Spending"!

OTOH the Michigan article is correct that existing tax law is sufficient to impose tax on people who do exploit the programs far beyond the norm, e.g. by charging hundreds of thousands of dollars of their own business's expenses to a rewards-earning credit card and deducting the full amount as a business expense. IMHO some prominent bloggers are at more tax risk than they realize.

GUWonder

Academic articles quite ordinarily are studies of, or otherwise touch upon, human activity that is "violative of terms and conditions" of various sorts.

gspurr

With the billions of dollars being socked away in off-shore tax shelters (most of it illegally). I would be pretty angry if the taxman started bothering with FF benefits.

ryandelmundo

If we start taxing FF miles, where does it all stop?

Lots of restaurants have a buy ten get one free sort of rewards card. Those free sandwiches aren't usually taxed.

What about a 25% off coupon? Is the 25% you saved taxable?

I suppose there is "real money" in the FF programs and the airlines sure are happy to have.

American supposedly gets $1 billion a year from selling miles to partners. That was before the merger. So they're making big bucks selling them. It's probably more profitable than flying!

Seems like that's the appropriate place to tax them, at the airline level, and have the tax already baked into the mileage.

cfischer

It's about a benefit from employment and those are frequently taxed. I am not at all opposed to taxing or removing benefits from corporate-paid flights. My company has long removed the ability to get MR points on corporate Amex purchases and I could see them easily go down the road of negotiating w/ all major airlines that our corporate fares (DJA company) won't earn miles.
I think that's just fair as long as EQMs and EQDs are awarded as usual which in the end benefits the company as well. It's just a matter of time until either uncle Sam taxes this or companies negotiate further discounts while earning miles is restricted or removed.

cfischer

benefits such as lounge access, pre-boarding, free bags etc. won't ever be taxed, that's just way too complicated. Earning miles is not that difficult to track and why on earth should that not be taxed? Heck my stock options or RSUs are taxed as well and they are probably worth as much as the miles I earn.

LilyTraveler

is any of this debate affected by the fact that we must pay taxes on tickets redeemed using FF miles? not sure which way that would cut, though...

pinniped

Here's the problem: today, miles do not have value. They are not an asset, property, a currency, a security, a coupon, or a promise of future services. I do not own any frequent flyer miles, nor do I own any guarantee of any kind of value from the airlines. The constrains fliers in some ways, but it helps us in others.

If the IRS wants to head down the road of taxing miles, that's fine but it's a huge Pandora's box with many other consequences. If they have value, if they're an asset that I own, then I want the ability to buy and sell them on the open market. I want the airlines to be regulated as a bank or securities firm would, as they are their computer systems are the caretaker of my property. The programs themselves would need to be regulated, as they become in effect akin to a quasi-banking system of their own, whereby I use my property as a currency to buy services. Airlines, for their part, would need to invest a lot more money in this infrastructure and would have to account for miles totally differently.

Maybe all of this wouldn't come about immediately by legislation. Bits and pieces would come into play over time as the holders of miles sued for rights to control their own property. I wouldn't think it would take long, for example, for lawyers to sue on behalf of fliers to be able to sell their taxed property on an open exchange. Also should be easy to sue to prevent airlines from destroying the property via expiration dates or other means.

In other words, NO, I don't want any of this. As much as we might complain about devaluations, program changes, and seemingly one-sided policies that allow airlines to change our perceived value of miles over time, I still think the very existence of the programs absolutely depends on the nebulous nature of miles. If they legally become property that has value, it's just as bad for us as it is for the airlines. The whole game at that point is over.

pinniped

No. Those are typically fixed-rate taxes, not a tax on some sort of arbitrary value of the miles or the flight. There may be exceptions somewhere in the world, but I typically see just the regular immigration, security, etc. taxes/fees as far as the government is concerned.

Of course there are the airlines that use YQ to scam award users, but that's an entirely separate thread.

TravelerMSY

The whole premise seems flawed because the employer is tasked with tracking and reporting the value of a benefit only indirectly purchased by them and provided by a third-party. No way would employers or airlines want to take on the compliance burdens for this.

UVU Wolverine

I understand where you are coming from, but that is from an employee standpoint. What about those of us that run our own businesses and deduct travel charges while still gaining the benefits? Is it then considered a benefit of the business? My qualm with the idea of that is while the IRS may choose to tax that benefit, the amount in tax revenue garnered from such a feat is likely far less than it cost in the first place to even monitor it.


I'm opposed to the whole idea of taxing these benefits/miles/etc for many reasons, and I think that pinniped summed it up very nicely.