Originally Posted by
ClimbGuy
What tax liability? Buying the coins is like getting 2 $10 bills for a $20. You aren't getting any extra money. At most maybe someone could argue you need to pay tax on the miles you earn.
The IRS has already determined that acquiring airline miles is not a taxable event. Although the following IRS anouncement is directed towards mileage earned thru business or offficial travel, the same rule applies to personally acquired miles. Don't get hung up on the last sentence "for tax avoidance purposes", we aren't doing that. This is a hobby for most of us and if you want to take it to the exteme, we are buying a product and selling a product for the same price, thus there is no profit, therefore no tax. For those who had thought about writing off their expenses, you can't take a hobby loss against other income. Yes, I am a tax pro and am not worried about what the IRS thinks of our hobby.
Announcement 2002–18
Most major airlines offer frequent flyer programs under which passengers accumulate miles for each flight. Individuals may also earn frequent flyer miles or other promotional benefits, for example, through rental cars or hotels. These promotional benefits may generally be exchanged for upgraded seating, free travel, discounted travel, travel-related services, or other services or benefits. Questions have been raised concerning the taxability of frequent flyer miles or other promotional items that are received as the result of business travel and used for personal purposes. There are numerous technical and administrative issues relating to these benefits on which no official guidance has been provided, including issues relating to the timing and valuation of income inclusions and the basis for identifying personal use benefits attributable to business (or official) expenditures versus those attributable to personal expenditures. Because of these unresolved issues, the IRS has not pursued a tax enforcement program with respect to promotional benefits such as frequent flyer miles.
Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel. Any future guidance on the taxability of these benefits will be applied prospectively. This relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.