Originally Posted by
thehawk75
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.
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.
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.