Two points on this. #1, how much is your basis in the miles? Remember the IRS takes sort of an innocent until proven guilty approach and if you can't prove how much the basis is, they will likely deem it to be zero. What basis could you use to allocate the basis of the tickets vs that of the points?

Now what would be interesting is that once you sold them, you might have a basis for allocating relative value. But, basis is supposed to be figured on your cost and not your proceeds, so I think you still have a problem.

#2, a long time ago there was a case involving someone who sold S & H Green Stamps (or Plaid Stamps, or something like that). That would seem to be similar in that people who collected the stamps paid the same price as those who did not. And, it was held that the entire proceeds were taxable. But, I can't provide a cite because it was so long ago I can't even remember how long ago it was! Certainly the rules could have changed. Also, let's not forget that if push came to shove, assuming the case was not pursued in Tax Court, the answer could be different depending on what circuit the taxpayer's state is in.

Q: What's the difference between the IRA and the IRS?

A: One is the Irish Republican Army and the other is a terrorist organization.